have three separate accounts is to stay under the radar with the mutual fund companies, otherwise it is the same entity.” (emphasis added) Satisfied with the explanation, this senior official approved the lower margin rate.
Broker Doe also used platforms at other broker-dealers as a way to deceive mutual
funds. Specifically, Broker Doe and his team opened accounts at Fidelity and Schwab on behalf of his market timing customers as another means of evading mutual fund blocks. Specifically, after mutual funds had repeatedly blocked certain customers’ trading through World Markets, Broker Doe and his team directed their customers’ trades through accounts they opened at Schwab and Fidelity so that the mutual funds would not immediately identify the customer as the same abusive market timer who traded through World Markets. Upper management at World Markets, including the Head of Financial Services and Head of Private Client Services, knew that Broker Doe had opened these accounts at Schwab and Fidelity to continue timing funds that had previously blocked
or rejected Broker Doe’s customers’ trades.
For example, after a mutual fund objected to Broker Doe’s timing for a customer
through World Markets, Broker Doe and his team directed the customer’s market timing through Schwab. The same mutual fund, however, then detected market timing through the Schwab platform and determined that the trading was done by Broker Doe and his customer. The mutual fund then contacted World Markets about its discovery. Upon learning that their trading through Schwab had been detected, the Head of Financial Services emailed the Head of Private Client Services, telling him that the fund’s discovery “proves that the Schwab account isn’t as concealing as we think.” (emphasis added) The next day, upon learning of trading in the fund through Schwab, Broker Doe’s Branch Manager wrote the Head of Private Client Services, “so much for stealth trading.” (emphasis added) Despite these emails, Broker Doe and his customers continued
to use Schwab and Fidelity to market time mutual funds.
At Broker Doe’s request, World Markets also established numerous selling
agreements with mutual fund families that previously had no relationship with CIBC. World
Markets understood that Broker Doe wanted these agreements so that his team’s customers could
then time these funds – and that is precisely what they did.
Moreover, in some of the selling agreements themselves, World Markets made
representations that its RRs did not provide market timing services to its customers. For example, in the agreement allowing World Markets to sell one particular fund, when asked “does your firm employ market timing services or utilize a market timing strategy,” World Markets responded “No.” That response was false. Moreover, World Markets obtained the dealer agreement with this
fund specifically at Broker Doe’s request.
On at least three other occasions, World Markets also lied to mutual funds that
had complained about Broker Doe’s market timing activity. In each email, World Markets’
management assured the complaining mutual fund that “[e]ngaging in market timing practices is
not a business we condone nor support.” (emphasis added) In response to one such email, Broker Doe’s Branch Manager called the author a “kiss a**,” [sic] who replied, “whatever it takes my friend….whatever it takes.” In another example, the Director of Mutual Fund