In yet another demonstration that the mutual fund market-timing scandal is not yet over, the Securities and Exchange Commission has settled a $125 million case with Canadian Imperial Bank of Commerce's broker/dealer and financing subsidiaries, citing a laundry list of securities violations. In this case, CIBC created structured transactions in the form of swaps in order to help hedge funds market time mutual funds and the company's CIBC World Markets unit facilitated market timing itself.
"By knowingly financing customers' late trading and market timing, as well as providing financing in amounts far greater than the law allows, [Canadian Imperial Holdings (CIHI)] and [CIBC] World Markets boosted their customers' trading profits at the expense of long term mutual fund shareholders," said Linda Chatman Thomsen, director of the division of enforcement.
CIBC has agreed to pay $100 million in disgorgement and $25 million in penalties for financing hedge fund customers, knowing that they would use the leverage to make deceptive trades in mutual funds. Furthermore, the credit extended violated margin and extension of credit requirements.
Finally, between 1999 and the beginning of 2003, a team of registered representatives facilitated mutual fund trading that violated the funds' anti-timing policies. Senior staff at World Markets was aware of this practice and encouraged it. Some of the registered reps also recorded post-4:00 p.m. trades as if they had come in prior to the market's close.