UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

Securities Act of 1933
Release No. 8360 / February 3, 2004

Securities Exchange Act of 1934
Release No. 49177 / February 3, 2004

Investment Advisers Act of 1940
Release No. 2212 / February 3, 2004

Investment Company Act of 1940
Release No. 26345 / February 3, 2004

Administrative Proceeding
File No. 3-11390

In the Matter of Paul A. Flynn

On February 03, 2004, the Commission issued an Order Instituting Public Administrative and Cease-and-Desist proceedings Pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), Section 203(f) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the Investment Company Act of 1940 and Notice of Hearing. The Division of Enforcement ("Division") alleges that from 2001 to 2003, Paul A. Flynn ("Flynn"), while employed as a Managing Director of Equity Investments at Canadian Imperial Bank of Commerce ("CIBC"), substantially assisted Security Trust Company, N.A. ("STC") and CIBC hedge fund clients, including Canary Capital Partners, LLC (the "Hedge Funds"), in engaging in late trading and deceptive market timing of mutual fund shares. Flynn knew or was reckless in not knowing that the Hedge Funds were engaging in late trading and deceptive market timing.

Specifically, the Division alleges that from 2001 to 2003, Flynn, while employed as a Managing Director of Equity Investments at CIBC, substantially assisted STC and the Hedge Funds in engaging in late trading and deceptive market timing. Flynn knew or was reckless in not knowing that the Hedge Funds were engaging in late trading and deceptive market timing. Flynn arranged for the Hedge Funds to receive financing from a CIBC affiliate, Canadian Imperial Holdings, Inc. ("CIHI"). Flynn negotiated and structured swaps and loan agreements that provided the Hedge Funds with leverage of at least 3:1 to trade in mutual fund shares.

The Division futher alleges that Flynn arranged for financing for the Hedge Funds knowing that they traded through an electronic trading platform operated by STC. In or about September 2001, Flynn participated in a due diligence review of STC. After the due diligence review, Flynn prepared a memorandum concerning the results of the review. In the memorandum, Flynn described STC's "Same Day/Late Day Trading Platform and the benefits this proprietary platform brings to our Mutual Fund Market Timing Clients." First, Flynn's memorandum stated that, unlike standard platforms that require trades to be submitted before 4:00 p.m., clients using STC's platform "are able to submit trades for same day value" after 4:00 p.m. "based upon published Net Asset Values." According to Flynn's memorandum, "[A] pricing list is prepared by the company and submitted to our clients who are then able to run their timing models against actual closing prices instead of the previous day before they submit trades."

Second, Flynn's memorandum explained that STC utilized several strategies to reduce the chance that mutual funds would detect the Hedge Funds' market timing and late trading:

[T]he company allows our clients to submit trades in a number of methods to reduce the chance that they would appear to be timing a specific mutual fund. The different types of investing are as follows: 1) Traditional account specific fund investing keeping account balances small; 2) Using a number of multiple legal vehicles (i.e. different Tax ID numbers) they rotate the ownership of the mutual fund transferring balances between related accounts; 3) Piggy backing non-12(b)1 accounts (i.e. 401K etc.) to invest in pools of funds on a net basis as specific ownership is not known by the fund; and 4) Piggy backing 12(b)1 accounts w[h]ere a specific agreement is made with a broker to include the additional fund investments….

On November 25, 2003, the Commission filed an action against STC and three former officers of STC in U.S. District Court for the District of Arizona ("STC Action"). The Commission alleges in its complaint that the defendants participated in fraudulent mutual fund late trading and market timing schemes by a group of hedge funds, and thereby STC violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Rule 22c-1 promulgated under Section 22(c) of the Investment Company Act of 1940. One of the defendants in the STC Action is Nicole McDermott ("McDermott"), the former vice president of corporate services at STC.

In a related criminal action in New York State Court, on or about December 9, 2003, McDermott pleaded guilty to a violation of the New York State Martin Act, based on the same conduct alleged in the STC Action. In connection with the guilty plea, McDermott admitted under oath that, between 2000 and late 2003, she placed, and directed others to place, numerous orders on behalf of the Hedge Funds for the purchase and sale of shares of mutual funds after 4:00 p.m. (ET), and executed each of these orders at a price that was only available to investors who had placed their orders before 4:00 p.m. (ET).

The Division alleges that by this conduct Flynn substantially assisted violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5 and Investment Company Act of 1940 Rule 22c-1 and seeks to determine what, if any, remedial action is appropriate including industry bars, disgorgement, civil penalty and a cease-and-desist order.

A hearing will be scheduled before an Administrative Law Judge to determine whether the allegations contained in the Order are true, to provide Flynn an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate in the public interest. The Commission directed that an Administrative Law Judge shall issue an initial decision in this matter within 300 days from the date of service of the Order.