leveraged market timing strategy without having either its name or the name of CIHI or CIBC associated with the trading.
World Markets Enabled Its Customers to Deceptively Market Time and Late Trade Mutual Funds
World Markets, through a team of RRs led by Broker Doe, and their managers
and supervisors, actively assisted market timing customers in deceiving mutual funds. World
Markets received over 1,000 letters and emails from mutual funds notifying World Markets and Broker Doe’s team of RRs that their customers’ market timing trading activities violated the terms of the mutual funds’ prospectuses and otherwise harmed the funds’ performance and other shareholders. The RRs, however, repeatedly ignored these letters and emails, and continued to work with timers up until the point when mutual funds threatened to terminate their dealer agreements with World Markets. Even then, Broker Doe’s team of RRs did not always stop, resulting in mutual funds terminating their dealer agreement with World Markets or refusing to
accept any trades from the branch office to which Broker Doe was assigned.
Broker Doe’s team of RRs used the following deceptive practices on behalf of
their customers: (1) they accepted mutual fund orders after 4:00 pm EST with the understanding that those trades would be entered to receive that day’s NAV; (2) after mutual funds had blocked trading by certain customer accounts, the RRs opened new accounts for those customers so they could continue to market time the mutual funds that had previously blocked them; (3) because mutual funds sometimes blocked certain RRs because their customers timed the funds,
the RRs created new RR numbers to disguise their identity and the identity of their customers; (4) they broke up trades into smaller amounts so that mutual funds would not detect the customers’ trading activity; (5) they used annuities to market time mutual funds; and (6) they used other broker-dealers that had other trading platforms, such as Charles Schwab & Co., Inc. (“Schwab”) and FMR Corp. (“Fidelity”), to continue market timing mutual funds that had blocked their customers’ trading through World Markets.
Specifically, from at least August 2001 to November 2002, RRs in Broker Doe’s
group took trades from one market timing customer after 4:00 pm EST, with the understanding that those trades would receive that day’s NAV. Typically, the customer would fax its proposed trades to the RRs before the market closed. Thereafter, the customer would call and instruct the RRs whether or not to execute the proposed trades. Many of these calls occurred after 4:00 pm,
allowing the customer to observe the after-hours markets. Moreover, the RRs sometimes cancelled those trades after 4pm at the request of one of their market timing customers.
World Markets could not locate trading spreadsheets that the aforementioned
customer sent in 2002. World Markets treated these spreadsheets as order tickets. These spreadsheets were books and records that World Markets, as a broker-dealer, was required to
make and keep current.
The RRs’ market timing business was well known to upper level management at
World Markets. Indeed, World Markets’ management made Broker Doe’s team of RRs the only