Bank of America Jury clears broker in US fraud trial

David Teather in New York
Friday June 10, 2005
http://www.guardian.co.uk/usa/story/0,12271,1503308,00.html

Eliot Spitzer, the New York attorney general, suffered a setback yesterday in his prosecution of mutual fund trading abuses when a jury cleared a former Bank of America broker in the only criminal trial to stem from the investigation so far.

The broker, Theodore Sihpol III, broke down in tears as the verdict was read out, according to reporters in the courtroom. Mr Sihpol, who was accused of larceny, securities fraud and falsifying business records, had faced up to 30 years in prison if he had been convicted.

Mr Spitzer first launched his crackdown on improper trading in mutual funds in September 2003. The attorney general has accused the industry of widespread improper trading to reward a few big clients at the expense of small investors.

The inquiry has led to several financial institutions paying out large settlements. In March last year Bank of America agreed to pay $675m (£375m) to resolve charges of trading abuses in its mutual fund business.

The trial of Mr Sihpol, 37, was the first time that Mr Spitzer had pursued the investigation into court.

Mr Sihpol was accused of allowing the hedge fund Canary Capital Partners to trade in mutual funds after the market had closed - so-called "late trading".

Prosecutors said Canary was given that day's price when it should have been charged the next day's price. The trading, the prosecution said, let Canary gain from events that happened after the 4pm market close. Canary has already paid $40m to settle allegations that it benefited from improper trading with Bank of America and three other firms.

The jury cleared Mr Sihpol of 29 counts and was deadlocked on another four. The judge accepted a split verdict and declared a mistrial on the counts that the jury had failed to agree on. Mr Spitzer's office had no comment.

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