New York Attorney General Eliot Spitzer announced Tuesday the arrest of a former executive of Canadian Imperial Bank of Commerce for allegedly stealing $1 million from mutual funds in a late-trading scheme. In a related action, the Securities and Exchange Commission has filed civil charges against Flynn as well.

Paul Flynn, the ousted managing director of CIBC’s equity trading desk, was arraigned in a Manhattan criminal court Tuesday afternoon facing five felony charges including two counts of grand larceny in the first degree, a class B felony. The former trader is also accused of two counts of "violation of business law" and one count of "scheme to defraud." If convicted of grand larceny, Flynn faces up to 25 years in prison.

"Our investigation has demonstrated that it took many players in the industry to make these schemes work," Spitzer said in a prepared statement. "This is the first case against someone who arranged financing so that late traders and timers could conduct illegal activities. This prosecution sends the message that those who arrange funding for illegal trading will be held accountable, as are those who make the trades."

The complaints allege Flynn financed the illegal late trading and inappropriate market timing of mutual funds by two hedge funds, Samaritan Asset Management and Canary Capital Partners. The hedge funds’ trades were made through Security Trust Company, which masked the orders as retirement and pension plan trades. Among the mutual funds that were timed in the scheme were the $4.9 billion MFS Emerging Growth Fund and the $9.3 billion Artisan International Fund.

The evidence against Flynn includes a memo in which he explained how STC disguised the hedge fund trades to "reduce the chance that they would appear to be timing a specific fund."

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