Two Plead Guilty in Mutual Fund Inquiry

The former chief executive and president of an Arizona-based trust company on Tuesday each pleaded guilty to criminal charges in a mutual funds industry investigation.

New York Atty. Gen. Eliot Spitzer accused the former executives of facilitating and participating in fraudulent mutual fund late trading and market timing schemes by a group of related hedge funds.

Grant Seeger, former CEO of Security Trust Co., pleaded guilty to second-degree grand larceny, and to a violation of a state business law. Former Security Trust President William Kenyon pleaded guilty to a felony violation of the same business law, Spitzer said.

Their New York-based attorneys said the plea agreement would result in no prison time, but in probation and each would pay a $50,000 fine.

Seeger’s attorney, Susan Necheles, said the defendants only admitted to setting up accounts through which market-timing trades were done, not conducting the late trades.

“That was going on through every brokerage firm in the country,” she said. “No one thought it was criminal at the time.”

Market timing -- or rapid in-and-out trades -- is not illegal but is prohibited by many funds because it can disadvantage ordinary shareholders by diluting the value of their shares.