Sihpol Reaches Settlement With SEC

by Glen Shapiro, LawAndTax-News.com, New York

17 October 2005

The US Securities and Exchange Commission announced on Wednesday the settlement of securities fraud charges against Theodore Charles Sihpol III, formerly a broker at Banc of America Securities.

Pursuant to the settlement, Sihpol has agreed to a $200,000 penalty and a five-year bar from the securities industry, although he has neither admitted nor denied wrongdoing.

The fraud charges, brought in an administrative and cease-and-desist proceeding instituted on Sept. 16, 2003, alleged that Sihpol played a key role in enabling Canary Partners LLP, a hedge fund customer of BAS, to engage in late trading in shares of mutual funds sold by BAS and others.

Late trading refers to the practice of placing orders to buy or redeem mutual fund shares after the time as of which a mutual fund has calculated its net asset value (NAV), usually as of the close of trading at 4:00 p.m. Eastern Time, but receiving the price based on the prior NAV already determined as of that day.

Late trading violates the federal securities laws concerning the price at which mutual fund shares must be bought or redeemed and defrauds innocent investors in those mutual funds by giving to the late trader an advantage not available to other investors. In particular, the late trader obtains an advantage - at the expense of the other shareholders of the mutual fund - when he learns of market moving information and is able to purchase or redeem mutual fund shares at prices set before the market moving information was released.

As part of the settlement, Sihpol consented to a Commission order barring him for five years from association with any broker, dealer, or investment adviser, and prohibiting him from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter. The Commission also ordered Sihpol to cease and desist from committing or causing any violations and any future violations of the antifraud, books and records and other provisions of the federal securities laws.

Following the settlement announcement, it emerged that related charges brought against the former BAS broker by New York's Attorney General, Elliot Spitzer had been rejected by Judge James A. Yates.

Earlier this year, Sihpol was acquitted by a jury on 29 of the 33 counts brought against him by Spitzer. A deadlock between jurors over the remaining four counts of falsifying business records and fraud led Judge Yates to declare a mistrial. However, controversially, the New York AG decided to retry Sihpol on the disputed four counts.

Following a meeting on Wednesday by lawyers for both sides, Judge Yates dismissed the remaining four charges, reportedly citing the SEC settlement.

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