Attorney General Spitzer And Securities And Exchange Commission File Charges Against Bank Of America Broker
New York State Attorney General Spitzer and Securities and Exchange Commission (SEC) Director of Enforcement Stephen M. Cutler today announced state criminal and federal civil charges against a Bank of America (BOA) broker for his role in a scheme involving unlawful trading of mutual funds.
The broker, Theodore C. Sihpol III, surrendered today in connection with Attorney General Spitzer's filing of a two-count complaint charging him with larceny and securities fraud. Each count is a felony charge.
The SEC today filed a related civil enforcement action. Specifically, the Commission issued an administrative order instituting proceedings in which the Division of Enforcement (the Division) alleges that Sihpol played a key role in enabling certain hedge fund customers of BOA to engage in late trading in shares of mutual funds offered by Bank of America, including the Nations Funds family of funds and other mutual funds. Based on the conduct alleged in the Order, the Division alleges that Sihpol violated, and aided and abetted and caused violations of, the antifraud, mutual fund pricing and broker-dealer record-keeping provisions of the federal securities laws. In its action, the Division is seeking civil penalties, disgorgement and other relief, which may include permanently barring Sihpol from the securities industry.
"Working with the Securities and Exchange Commission, my office is pursuing those responsible for illegal trading schemes that potentially cost mutual fund shareholders millions of dollars annually," Spitzer said.
Cutler said: "I am pleased that the staff of the Commission and Attorney General Spitzer were able to work closely and cooperatively in bringing today's important actions. The conduct alleged is antithetical to what investors expect when they buy or sell mutual funds, which is that each of them will be treated fairly. We will continue to pursue this matter aggressively."
Sihpol, 36, of New Canaan, Connecticut, was a broker responsible for executing trades of BOA's Nations Fund Trust for Canary Capital Partners, LLC. Canary was named in a civil complaint filed by Spitzer's office on September 3 detailing illegal trading in the mutual fund industry.
The allegations involve "late trading," which is prohibited by New York law and SEC regulations because it allows a favored investor to take advantage of post-market-closing events not reflected in the share price set at the close of the market.
The specific criminal charges against Sihpol are as follows: Grand Larceny in the First Degree, a violation of the Penal Law §155.42, a class B Felony; and Violation of the General Business Law §352-c(6), a class E felony.
If convicted of the first charge, the defendant would face a mandatory term in state prison.
The specific civil charges against Sihpol are that he willfully violated and/or aided and abetted and caused violations of (i) Section 17(a) of the Securities Act of 1933, (ii) Sections 10(b) and 17(a) of the Exchange Act of 1934, and Rules 10b-5, 17a-3 and 17a-4 thereunder, and (iv) Rule 22c-1 promulgated under Section 22(c) of the Investment Company Act of 1940.
In connection with the SEC's order, a hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the order are true and to provide Sihpol an opportunity to respond to them.
The criminal charges are merely accusations, and the defendant is presumed innocent until and unless proven guilty.
The criminal case is being prosecuted by Assistant Attorneys General Kevin Suttlehan, Harold Wilson and Ricardo Velez under the direction of Criminal Prosecutions Bureau Chief Janet Cohn.
The SEC's civil investigation is being overseen by SEC Associate Regional Director Mark K. Schoenfeld.
The New York Attorney General's and SEC's investigations are continuing.