Spitzer Drops Criminal Charges Against Sihpol

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The New York Sun

New York Attorney General Eliot Spitzer dropped criminal charges against Theodore Sihpol III, after the former Bank of America broker settled a civil suit with the Securities and Exchange Commission over late trades.


Mr.Sihpol,38,agreed to pay $200,000 and be barred from the securities industry for five years, without admitting or denying wrongdoing, the SEC announced this morning. A few hours later, a New York judge dismissed four criminal counts against Mr. Sihpol at the attorney general’s request.


Mr. Sihpol was acquitted on most charges against him this summer and got a mistrial ruling on the rest, handing Mr. Spitzer his first defeat in a three-year investigation of the financial industry. Mr. Spitzer resolved most cases by settlement.


“The bottom line is that he was acquitted on almost everything,” Mark Winston, a lawyer and former federal prosecutor who tried securities cases, said. “Spitzer’s office took a strong stand, but now with the SEC settlement maybe they said, ‘Let’s cut our losses and move on.'”


Both the criminal and civil actions grew out of investigations into late trading of mutual funds. The jury earlier this year found the former broker not guilty on 29 of 33 charges, deadlocking on the rest. Mr. Sihpol still faced the possibility of being retried on the last four.


At a hearing after today’s SEC announcement, Assistant Attorney General Harold Wilson asked Justice James Yates of New York State Supreme Court to dismiss the charges, and the request was granted.


The jury’s decisions in the summer and the terms of the SEC settlement mean “the interests of justice have been served and further proceedings in this matter are unnecessary,” Mr. Wilson told the judge. He noted that Mr. Sihpol made a statement regretting his actions.


“I now recognize and regret that my conduct helped give Canary Capital an unfair trading advantage over other Bank of America mutual fund shareholders,” Mr. Sihpol told Judge Yates, referring to the hedge fund he helped with his trading.


A lawyer for Mr. Sihpol, Evan Stewart, said outside the courtroom that Mr. Sihpol’s statement didn’t amount to an admission of wrongdoing.


“I’m evaluating all my options,” Mr. Sihpol said after the hearing. “I feel great. I’m very thankful for my family, my wife, and obviously my legal team for supporting me.”


Mr. Spitzer said in June after the criminal trial that he would retry Mr. Sihpol if the broker didn’t admit wrongdoing and accept sanctions in a settlement with the SEC. Mr. Sihpol, if convicted, would have faced as long as 16 years on the fours charges.


The undecided criminal charges were securities fraud, scheming to defraud, and two counts of falsifying business records. In the trial, the jury voted 11 to 1 for acquittal on those charges, jurors said afterward.


The charges against Mr. Sihpol grew out of his helping a now-defunct New Jersey hedge fund, Canary Capital Partners, trade in mutual funds after the stock market closed. Mr. Spitzer contended that the late trading was a crime because it diluted the returns of fund members who weren’t granted the same advantage. Mr. Sihpol’s lawyers argued that late trading is legal and that their client never intended to commit a crime.


Mr. Sihpol’s trial was the first to arise from Mr. Spitzer’s investigation of the mutual fund industry. In August, two former executives of the Phoenix-based retirement plan administrator Security Trust, Grant Seeger and William Kenyon, pleaded guilty to securities fraud and were sentenced to probation. A third defendant, Paul Flynn, is scheduled to be tried November 21.


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