Spitzer Abandons Another Court Case Against a Banker
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York State attorney general, Eliot Spitzer, dropped charges yesterday against an investment banker, backing off a second high profile case centered on illegal trading of mutual funds.
The move came as a surprise to those following the case against Paul Flynn, a former executive at Canadian Imperial Bank of Commerce, and was characterized by some as a defeat for Mr. Spitzer, a Democratic candidate for governor who has been touting his efforts to root out corruption at Wall Street’s big financial firms.
A Manhattan-based securities lawyer, Jacob Zamansky, told The New York Sun that he thought Mr. Spitzer was becoming “gun-shy” and that yesterday’s decision was a clear sign that the attorney general did not want to risk another major loss in court.
“He is only bringing what he considers to be slam-dunk cases and is dropping everything else,” said Mr. Zamansky, who provided Mr. Spitzer with evidence for his blockbuster case against Merrill Lynch a few years ago.
On October 12, Mr. Spitzer dropped charges in another case, against a former Bank of America broker accused of illegal after-hours trading of mutual funds.
Yesterday’s motion to dismiss was granted by Justice James Yates after a brief hearing yesterday in state Supreme Court in Lower Manhattan. In the motion, Mr. Spitzer lays out his rationale for dropping the case. The request for dismissal cites the fact that Mr. Flynn’s co-defendants, Grant Seeger and William Kenyon, whose roles were more central to the illegal trading, pleaded guilty. The men, who both worked for a firm called Security Trust Company, were sentenced only to probation.
The attorney general also pointed to several other developments that have taken place since Mr. Flynn was indicted, including a settlement that required his company, CIBC, to pay $125 million.
“This corporate acceptance of responsibility has bolstered defendant Flynn’s contention that his conduct in this matter was known and approved by his firm,” Mr. Spitzer wrote in the motion.
Mr. Zamansky said, however, that Mr. Spitzer’s emphasis on “photo opportunities” and “media events” doesn’t match his ability to deliver convictions.
“Don’t bring a case unless you’re prepared to see it to conclusion or get a significant settlement,” Mr. Zamansky said.
In June, the Bank of America broker, Theodore Sihpol III, was acquitted on 29 counts of larceny, falsifying business records, and other alleged crimes related to mutual fund trading. Six weeks ago, Mr. Spitzer declined to retry after Mr. Sihpol agreed to pay a $200,000 fine to settle civil charges brought by the Securities and Exchange Commission.
Mr. Zamansky said losing the Sihpol case was a “wake-up call” for Mr. Spitzer.
“Wall Street used to just roll over when he would bring charges,” Mr. Zamansky said. “He is now going to encourage people to fight a lot more.”
The Sihpol case was seen as a setback for Mr. Spitzer, who supporters see as an advocate of individual investors and who critics portray as overzealous and anti-business.
A criminal defense attorney and Fox News analyst, Arthur Aidala, said yesterday’s events were “something out of the ordinary.”
“Having an indictment dismissed after a year and a half investigation is just unheard of,” he said. He called it a “feather in the cap” for Mr. Spitzer to get a $125 million settlement, but said the dismissal “leads one to question the validity of the original charge.”
Nonetheless, he said investors would probably rather have their money back than see someone go to jail.
A spokesman for Mr. Spitzer, Brad Maione, said: “The recommendation for dismissal does not speak to the defendant’s legal guilt, but rather to the fact that in light of post-indictment developments, alternate sanctions for his conduct are more appropriate.”
The motion also said an unspecified number of former employees at the company assisted “two dishonest hedge funds” in the alleged late-trading scam and were not being criminally prosecuted.
Additionally, Mr. Spitzer wrote that his investigations of the mutual fund industry – done in conjunction with the SEC – have led to the recovery of $3 billion for investors and nine convictions.
The SEC will proceed with a civil case against Mr. Flynn. The director of the commission’s New York’s office, Mark Schonfeld, said Mr. Spitzer’s decision to drop the case would not affect the SEC case, which also accuses Mr. Flynn of assisting with late trading.
“Our case is still pending,” Mr. Schonfeld said. “Now that the criminal case is resolved, our civil case can proceed.”
A lawyer for Mr. Flynn, David Gendelman, declined to comment when reached by phone in his Manhattan office last night.