In anticipation of the institution of these proceedings, Respondents have submitted an Offer of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s jurisdiction over them and the subject matter of these proceedings, Respondents consent to the entry of this Order Instituting Administrative and Cease- and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and- Desist Order Pursuant to Section 8A of the Securities Act, Sections 15(b) and 21C of the Exchange Act, Section 203(e) of the Advisers Act, and Sections 9(b) and 9(f) of the Investment Company Act (“Order”), as set forth below.
On the basis of this Order and Respondents’ Offer, the Commission finds1 that:
CIHI and World Markets, which are subsidiaries of Canadian Imperial Bank of
Commerce, Inc. (“CIBC”), participated in a scheme to defraud numerous mutual funds and their shareholders through late trading and deceptive market timing.
More specifically, CIHI and World Markets engaged in three types of conduct that
violated the federal securities laws: a) CIHI financed hedge fund customers while knowing the hedge funds would use the leverage to late trade and deceptively market time mutual funds; b) CIHI provided, and World Markets arranged, improper financing for market timing hedge fund customers in violation of the margin and extension of credit requirements; and c) a team of World
Markets registered representatives (“RR”) enabled numerous customers to late trade and deceptively market time mutual funds.
With respect to the financing, CIHI provided funds to at least two hedge fund
customers knowing those hedge funds would use the leverage to late trade and market time through Security Trust Corporation (“STC”), a Trust Company in Phoenix, Arizona. A CIHI Managing Director wrote a due diligence memorandum to CIBC’s Credit Department in which he explicitly stated that STC’s ability to allow late trades provided “significant benefits to our customers.” Moreover, in addition to late trading, numerous CIHI officials understood that the hedge funds they
were leveraging, in executing their market timing strategy, had to “hide” their activity, use “stealth” tactics, and otherwise “stay under the radar” of the mutual funds. By leveraging these entities while knowing they were engaged in deceptive market timing and late trading, CIHI participated in a scheme to defraud mutual funds and their long term shareholders, thus violating the antifraud provisions of the federal securities laws.
1 The findings herein are made pursuant to Respondents’ Offer and are not binding on any other person or entity in this or any other proceeding.