Spitzer Defeated In Late Trading Trial

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

13 June 2005

In a rare defeat for New York's attorney general, Eliot Spitzer, a Manhattan jury last week acquitted former Bank of America broker, Theodore Sihpol III, of helping a New Jersey hedge fund illegally trade in mutual funds after the stock market had closed.

The jury of seven women and five men acquitted Mr.Sihpol, 37, of 29 counts of larceny, securities fraud, and falsifying business records. The jury reached no verdict on four other counts, leading New York State Supreme Court Justice James Yates to declare a partial mistrial. A hearing on 23rd June will consider how to proceed on those four counts.

Eliot Spitzer has brought numerous prosecutions for alleged mutual fund market timing and late trading offences, most of which have been settled by the firms and individuals involved. The Sihpol case was the first mutual-fund actions to go to trial, and its result throws doubt on the wisdom of proceeding with a number of similar cases still pending, including the prosecution of Paul Flynn, a former managing director at Canadian Imperial Bank of Commerce's Canadian Imperial Holdings, for allegedly conducting a late-trading operation with Canary Capital and another hedge fund, Samaritan Asset Management. Several executives of Security Trust Co., (now closed) face similar charges.

Mr. Sihpol's lawyers argued throughout the trial that late trading was legal at the time and that their client never intended to commit a crime. Barbara Penn, the jury foreperson, said to reporters after the verdict that Mr Sihpol was a "scapegoat" and a "fall guy". Mr. Sihpol had lost his job and his reputation had been sullied as a result of the case, said Ms Penn: "He had been punished enough."

It's not clear that the acquittal of Mr Sihpol will dent Eliot Spitzer's zeal to pursue perceived wrongdoing in New York's securities industry. What might do that is Mr Spitzer's plan to run for governor of New York in 2006, although since the announcement, last December, he has certainly not seemed to slow down, taking pole position in the pursuit of alleged improper accounting at insurer American International Group Inc.

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