Former BofA Broker Settles Fraud Claims
A New York state judge Wednesday dismissed unresolved criminal charges against a former Bank of America Corp. broker, who agreed to pay a $200,000 fine to settle civil charges of defrauding mutual fund shareholders by allowing a favored customer to make illegal after-hours trades.
The moves ended the government cases against Theodore Sihpol, the first individual to go on trial as a result of an investigation of widespread trading abuses in the $8-trillion mutual fund industry.
At the request of state prosecutors, Justice James Yates of state Supreme Court in Manhattan threw out the four criminal charges against Sihpol, including falsifying business records, on which a jury was unable to reach a verdict this spring. Sihpol was acquitted in June on 29 of the 33 counts against him, which included grand larceny.
The prosecutors made the request in light of Sihpol’s settlement, announced Wednesday, with the Securities and Exchange Commission and his statement to the court that he regretted his actions.
Sihpol, 38, also was banned for five years from the securities industry under the accord with the SEC, in which he neither admitted nor denied wrongdoing.
The SEC brought the charges against Sihpol in September 2003, alleging that he allowed hedge fund Canary Capital Partners to make $100 million by engaging in so-called late trading of mutual fund shares sold by Banc of America Securities.
Sihpol read a brief statement in court saying, “I now recognize and regret that my conduct helped give Canary Capital an unfair advantage over other Bank of America mutual fund shareholders.”
Canary handles the fortune belonging to the Stern family, former owners of the Hartz Mountain Industries Inc. pet products company.
The hedge fund’s top officer, Edward Stern, paid $40 million to settle New York Atty. Gen. Eliot Spitzer’s case against him for alleged late trading.
Outside court, Sihpol said he did not yet know what kind of work he would be doing in the near future. “I’m evaluating my options,” he said.
He remains a defendant in lawsuits brought by shareholders.
The SEC charges against Sihpol were one of the first actions by regulators in an industrywide crackdown after Spitzer exposed trading abuses in the mutual fund industry.
Sihpol was accused of stealing more than $1 million from six mutual funds and charged with grand larceny, scheming to defraud and falsifying business records.
Late trading, which is illegal, involves letting favored customers receive the market-closing price on fund shares for orders placed after the stock market’s close at 4 p.m. Eastern time. This allows the customers to profit on market-moving news that develops after the close.
Other investors who place late orders to buy the funds would have to pay the next day’s closing price, losing out on gains that had accrued since the close of business the previous day.
