Theodore Sihpol III, the former broker at Banc of America Securities (BAS) and poster boy for the market-timing scandals, agreed to pay a $200,000 fine and to accept a five-year ban from the securities industry. New York State Attorney General Eliot Spitzer dropped criminal charges against Sihpol, a notable event since Sihpol was the first target of Spitzer’s probes to have rejected a plea offer.
In 2003, the SEC alleged that Sihpol helped Canary Partners, a hedge fund customer of BAS, engage in late trading of mutual funds. “In the process, Sihpol falsified, altered, destroyed or evaded the creation of books and records that BAS was required to create…and preserve,” says an SEC release.
Spitzer indicted Sihpol at the same time as the SEC, but for grand larceny and fraud relating to the same abuses. Interestingly, no broker had been brought up on charges of late trading by the SEC at the time. Soon after the indictments the SEC proposed a “hard” 4 p.m. close on all trades. The SEC also encouraged redemption fees, but the measure has sparked heavy opposition and the SEC has decided to leave the decision up to firms.
At the time of his indictment, with market-timing scandals spreading to other firms, Spitzer had been praised and admonished for the swift action he took against fund firms and executives, squeezing a series of plea agreements out of guilty parties. But it soon became clear that not every mutual fund executive could be painted with a criminal brush .
Sihpol received a lot of press for being one of the first to be charged, but he got even more ink when he rejected the attorney general’s plea deal and opted to go to court. The fight proved to be wise: In June he was acquitted on 29 of 33 charges, all relating to mutual fund trading. The jury was “hung” on the last four counts. An irritated Spitzer said he’d try the BAS broker again. While this settlement resolves only the SEC charges, Spitzer has asked a New York judge to drop the remaining four charges against him.
Sihpol consented to the settlement without admitting or denying the charges.