NEW YORK – State authorities filed criminal charges Tuesday against a former Bank of America broker allegedly at the center of illegal mutual fund trades they say cost investors tens of millions ofdollars.
Theodore Sihpol III, 36, surrendered to authorities and was to be arraigned later Tuesday on felony charges of grand larceny, said New York Attorney General Eliot Spitzer at a joint news conference with the Securities and Exchange Commission, which filed simultaneous civil charges alleging violations of securities law.
Sihpol’s lawyer, Don Buchwald, did not immediately return a phone call seeking comment. A message left at Sihpol’s home in New Canaan, Conn., also was not immediately returned. If convicted, Sihpol faces eight to 25 years in prison.
Spitzer said the charges were the first of several expected in the mutual fund probe he announced this month. “There is an effort by my office and the SEC to pursue what we believe to be a serious market problem,” he said.
On Sept. 3, Spitzer announced that Canary Capital Partners, a multimillion- dollar hedge fund, had agreed to pay $40 million to settle charges that it had improper trading arrangements with several mutual fund companies, including Bank of America. Canary has admitted no wrongdoing and is cooperating with the probe.
At the news conference, Spitzer accused Sihpol of being “at the center of the relationship” between Canary and Bank of America. The allegations involve “late trading,” in which investors are allowed to buy and sell funds at that day’s prices after the close of markets, setting them up to profit on market-moving news that develops after the markets close. Ordinary investors who placed late orders to buy the funds would have to pay the next day’s closing price, losing out on that day’s gains.
“Our combined message is clear: Late trading is wrong [and] is clearly prohibited by the SEC,” said Stephen Cutler, enforcement director for the commission, who added that wrongdoers will be punished.
The SEC seeks civil penalties, recovery of funds, and possibly a ban of Sihpol from the securities industry for life.
Sihpol, who worked for Bank of America’s high-net worth group in New York, was fired last week along with several other employees associated with the firm’s mutual fund business.
