Sep. 16–New York and federal officials are expected to announce criminal and civil charges today related to the widening mutual fund investigation that has ensnared several large companies,including Bank of America Corp.
In a joint press conference scheduled for noon in New York, state Attorney General Eliot Spitzer and the Securities and Exchange Commission will announce charges against at least one of the former Bank of America employees whose actions were detailed by Spitzer in a complaint released two weeks ago, according to sources close to the investigation.
The sources would not say who would be charged nor would they specify the allegations.
The Wall Street Journal reported early this morning that charges could be filed against former Bank of America broker Ted Sihpol. The charges could be delayed if Sihpol cooperates with the investigation by providing extensive additional information to the regulators, the paper reported.
Any criminal charges would be filed by the New York attorney general. The SEC, as a federal regulator, can file only civil charges.
The Charlotte-based bank has not been charged with wrongdoing.
Bank of America said Friday it had dismissed three employees named in Spitzer’s complaint, plus several others. Those dismissed included Rob Gordon, president of the bank’s mutual fund division; Charles Bryceland, who managed wealthy clients at a Midtown Manhattan bank location; and Sihpol.
Telephone calls to the former employees Monday were not returned.
Bank of America spokesman Bob Stickler said that as of early Monday evening the bank was unaware of the planned announcement in New York.
Spitzer’s office confirmed plans to announce criminal action, but declined to comment further. The SEC declined to comment.
The visibility of white-collar investigations has increased in recent years because of alleged financial irregularities at large companies such as Enron Corp. and WorldCom Inc.
“White-collar investigations are on the rise in the bigger money markets like New York, (Washington) D.C., Chicago and Los Angeles,” said Ed Novak, head of the white-collar crime group at the Quarles & Brady Streich Lang law firm in Phoenix.
Spitzer announced his investigation into the mutual fund industry nearly two weeks ago after alleging that Bank of America and three other companies aided New Jersey hedge fund Canary Capital Partners LLC in questionable — and possibly illegal — trading practices.
Canary agreed earlier this month to pay $40 million in restitution and fines to settle Spitzer’s charges. Spitzer also named Janus Capital Corp., Bank One Corp., and Strong Capital Management Inc. in the Canary investigation.
In the complaint against Canary, Bank of America was named as having the most extensive relationship with the hedge fund, which is owned by Edward Stern, a wealthy scion of an elite New York family.
Spitzer’s allegations focused mainly on the activities of former Bank of America broker Sihpol and often quoted his e-mails regarding trading transactions with Stern’s hedge fund. According to the Spitzer complaint, Sihpol, who initiated the Canary relationship, allegedly allowed the hedge fund to trade shares of Bank of America’s Nations Funds mutual funds after the 4 p.m. market close at that day’s market price — a move considered illegal. Such trades can capitalize on after-hours increases in share prices, an advantage not afforded to ordinary customers.
According to the complaint, Sihpol also allowed Canary to time the market, which involves going in and out of the funds in short periods of time — a move that often diminishes the value of investors’ shares.
Sihpol informed Bank of America executives, including Gordon and Bryceland, of the Canary relationship, according to the complaint.
Within days of Spitzer’s allegations, Bank of America announced an internal investigation and said it was cooperating with officials.
The bank said Monday its lawyers were not representing any of the former employees listed in the complaint.
Jonathan Bernstein, owner of Bernstein Communications Inc., a crisis management firm in Los Angeles, said there is a high level of public expectations post-Enron that companies and their employees should be responsible for shareholders.
“Attorneys in general are aware of that motivation and act on it,” Bernstein said.
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