Trial Opens for Broker in Mutual Fund Case

[FaGal]

Trial Opens for Broker in Mutual Fund Case
www.washingtonpost.com - By SAMUEL MAULL - The Associated Press - May 2, 2005


NEW YORK - A former Bank of America broker, motivated by money, helped a favored client subvert the mutual fund trading system to make millions of dollars, a state prosecutor said Monday in opening statements at the former broker's trial.

The defendant, Theodore C. Sihpol III, 37, helped Canary Partners Inc., a multimillion-dollar hedge fund, profit by the illegal late trading of shares in mutual funds, said Assistant Attorney General Harold Wilson.

Sihpol, charged in a 40-count indictment with grand larceny, scheme to defraud and related offenses, is the first defendant to be tried as a result of state Attorney General Eliot Spitzer's investigation of the securities industry.

Sihpol's lawyer, Evan Stewart, was to address the jury later in the day. He has said there is no law against late trading and that after Sihpol's arrest last Sept. 16, federal regulators proposed a rule that still has not gone into effect.

The indictment alleges that in $2.3 billion worth of trades Sihpol stole more than $1 million from each of six mutual funds, including the Nations Funds Trust, which is associated with Bank of America; PIMCO Funds; MFS Family of Funds; Janus Investment Fund; Fred Alger Fund and RS Investment Trust.

Wilson said Sihpol arranged to get the day's closing price for Canary even though their trades were placed after the 4 p.m. market close. Normally, investors who place after-hours trades to buy fund shares have to pay the next day's closing price, losing out on gains that had accrued since the close of business on the previous day.

"This false and deceptive practice allowed Canary to obtain shares from mutual funds at prices for which the funds would not have sold the shares if they had known of the contrivances of Theodore Sihpol," Wilson told the jury.

The prosecutor said Sihpol not only agreed to allow Canary's improper late trades, but actually took part in the deception by having trading tickets stamped to show that transactions took place before the close of business at 4 p.m.

"The defendant knew of and participated in Canary's late trading scheme from beginning to end," Wilson told the jury. "This defendant, motivated by financial gain, aided and abetted Canary as it intentionally and continuously subverted" the system.

The prosecutor said that at one point Sihpol helped Canary get the electronic technology that allowed Canary to execute its own trades numerous times as late as 6:30 p.m. and sometimes even change the number of shares that were to be traded.

Stewart, the defense lawyer, says the late-trading procedures were "open and well-known. This is the process everybody (all of the brokers) took part in. The compliance people (internal watchdogs) at Bank of America knew about it. They twice approved this."

Sihpol has been free on $750,000 bail. He faces up to 25 years in prison if convicted just on the top charge, first-degree grand larceny. Other lesser related charges are punishable by up to four years each.

[FaGal]

Jury hears two sides of ex-broker in fund case
www.newsday.com - BY SUSAN HARRIGAN - STAFF WRITER - May 3, 2005


Theodore Sihpol III, an ex-broker for Bank of America Corp., was either a knowing participant in a scheme to profit from a hedge fund's illegal mutual fund trading or a mere "order taker" who "stole nothing" and had no idea that what he did was wrong, according to opening statements at Sihpol's trial yesterday.

Sihpol, who is charged with larceny and securities fraud, was the first person indicted in New York State Attorney General Eliot Spitzer's probe of the nation's mutual fund industry. He also is the first defendant in Spitzer's major investigations of the financial industry to force Spitzer into trying him in a New York State criminal court.

To win the trial, held before Judge James Yates at New York State Supreme Court in Manhattan, the government must show that its charges are true beyond a reasonable doubt. Some attorneys say that a Spitzer loss could affect defense tactics in at least one other mutual fund case that is scheduled for trial this fall, and also embolden other targets of his probes to fight rather than settle.

Harold J. Wilson, the lead prosecutor for Sihpol's trial, told jurors the evidence will prove the broker knew he was committing a crime when he helped Canary Capital Partners, a hedge fund run by Edward J. Stern, place mutual fund trades after the 4 p.m. U.S. market close between May 2001 and July 2003. Reading aloud from transcripts of tape-recorded conversations included in the government's formal charges against Sihpol, Wilson said it is clear that Sihpol "harbored a truckload of guilty knowledge about what Canary was doing."

Sihpol "profited" from Canary's activities, Wilson said, without describing exactly how. He said Sihpol made more than $600,000 in 2002.

By contrast, C. Evan Stewart, an attorney for Sihpol, said his client was an "order taker," a "guy at the bottom of the totem pole" whose actions on behalf of Canary were approved by, and known to, "top levels of Bank of America executives."

"Our defense is Ted's bosses and his colleagues knew about the Canary trading and no one ever told Ted it was wrong," Stewart said. "No intent equals no crime."

He said that Stern described his proposed scheme to Bank of America executives as "nice insurance" for his trades, and that even after paying $40 million to settle Spitzer's charges without admitting or denying wrongdoing, Stern had $60 million left over from his trading. Stern has cooperated with prosecutors and is expected to testify.

[FaGal]

Late trade recalled at broker trial
www.charlotte.com - THOM WEIDLICH - Bloomberg News - May 5, 2005

$10 million worth of mutual fund shares said stamped with false time


The first trade ex-Bank of America Corp. broker Ted Sihpol handled for Canary Capital Partners LLC was a late trade, a former hedge fund broker testified today at Sihpol's fraud trial in New York state court.

Noah Lerner, a former broker with Canary, said he asked Sihpol to buy $10 million worth of shares in three mutual funds associated with Bank of America Nations Funds. Lerner said he made the request at 4:11 p.m. on May 16, 2001, 11 minutes after trading had ended for the day at the New York Stock Exchange.

"I got to find my technician, and uh, we will make it happen," Sihpol was heard telling Lerner in a taped telephone conversation played in the Manhattan courtroom. Lerner said he understood the use of the word "technician" to mean that Sihpol would have someone stamp order tickets with a time before 4 p.m. The May 16 order tickets were stamped 3:45 p.m., he said.

Prosecutors are trying to show that Sihpol knew that the trades made for Canary after 4 p.m. were improper, and that he sought to hide them by backdating their order tickets.

Sihpol, 37, is accused of helping now-defunct Canary, formerly based in Secaucus, N.J., to engage in the illegal late trading of mutual funds. Sihpol's trial is the first stemming from New York Attorney General Eliot Spitzer's investigations into the mutual fund industry.

He is accused of assisting Edward Stern, who ran Canary. Stern's father, billionaire Leonard Stern, owned Hartz Mountain Corp., the pet-supply company now part of Sumitomo Corp. of Tokyo. Lerner still works for the Stern family's investing business, he said.

Sihpol, indicted last year for larceny, securities fraud and falsifying business records, facilitated Canary's late trading in Bank of America Nations Funds and other companies' mutual funds, Spitzer said. He has pleaded not guilty.

Lawyers for Sihpol, 37, have said late trading wasn't illegal and that their client never intended to commit a crime.

[FaGal]

Sihpol Was Paid `Thousands of Dollars' Witness Says
www.bloomberg.com - May 10, 2005


Ex-Bank of America Corp. broker Theodore Sihpol III was paid ``hundreds of thousands of dollars'' in commissions from late mutual fund trades he handled for a hedge fund, his former assistant testified at his fraud trial.

Prosecution witness Andrea Wenner, 27, told jurors today in New York state court in Manhattan that she helped determine Sihpol's commissions for the trades. Assistant New York Attorney General Stephen Antignani asked her how much Sihpol was paid for handling the trades of the now-defunct New Jersey hedge fund Canary Capital Partners LLC.

``It was a lot of money,'' Wenner said. ``Hundreds of thousands of dollars.''

Wenner's testimony, coming in the second week of trial, was the first to mention a possible financial incentive for Sihpol to make Canary's after-market trades. Sihpol, 37, is accused in a 40- count indictment of helping Canary engage in what prosecutors contend was the illegal late trading of mutual funds. Sihpol's trial is the first arising from New York Attorney General Eliot Spitzer's mutual fund industry investigation.

Under U.S. Securities and Exchange Commission rules, mutual fund shares trade at the price set at 4 p.m., the end of the trading day, Spitzer contends. Sihpol is accused of allowing the Canary to make trades after the market closed, at that day's price, instead of waiting for the market to reopen the next day.

Arrangement

Noah Lerner, a former Canary trader, testified last week that Canary had an arrangement with Bank of America in which the hedge fund would e-mail the bank its proposed trades for the day in the mid-afternoon, and Sihpol or an assistant would time-stamp the order tickets before 4 p.m. Canary would then call after 4 p.m. with the trades it wanted completed, Lerner said.

Sihpol told Wenner which Canary trades to complete, she said. Asked what she did with order tickets for proposed trades that were later canceled, she said, ``Based on his instructions I probably would have tossed them in the garbage,'' referring to Sihpol. On cross-examination, Wenner said she didn't think there was anything wrong with throwing out the unused tickets.

Wenner also testified about a conversation she overhead in spring 2003 between Sihpol and Michael Brown, a managing director at Banc of America Securities. Brown asked Sihpol what time of day Canary made its trading decisions, she told the jury. Sihpol told Brown that the decisions were made before 4 p.m., she said.

Cross-Examination

Wenner said on cross-examination by defense attorney Evan Stewart that Bank of America's mutual funds trading operations in San Francisco knew Sihpol was trading after hours.

Lerner said yesterday that Canary usually decided what trades to make based on information obtained before the market closed, and that it wasn't unusual for trades to be completed after 4 p.m.

Today, Stewart had Wenner identify several trading tickets time-stamped after 4 p.m., in an effort to show that Sihpol wasn't trying to hide late trades.

Stewart, a partner at New York-based Brown Raysman Millstein Felder & Steiner, showed the jury a May 2002 e-mail from Sihpol to Bank of America mutual fund operations in Wilmington, North Carolina.

Canary ``has always traded with the understanding that as long as the trades are to us by about 5:15 they will be processed,'' Sihpol wrote in the e-mail. ``We have never been told differently and continue to understand that this is acceptable.''

Calls and an e-mail to a Michael Brown at Bank of America's Charlotte, North Carolina, headquarters weren't immediately returned.

Indicted

Sihpol, who was indicted last year for larceny, securities fraud and falsifying business records, facilitated Canary's late trading in Bank of America Nations Funds and other companies' mutual funds, Spitzer said. Sihpol has pleaded not guilty.

Defense lawyers have said late trading wasn't illegal and that their client never intended to commit a crime. He faces a maximum of 30 years in prison if he's convicted and a fine of $200,000.

Wenner left Bank of America in May 2003 and is currently a student at Columbia Business School. She resumes her testimony tomorrow under redirect questioning by prosecutors.

The case is People v. Sihpol, New York State Supreme Court, Indictment No. 1710/2004.


To contact the reporter on this story: Thom Weidlich in New York State Supreme Court at tweidlich@bloomberg.net.

[FaGal]

Key witness takes stand vs. broker
www.nydailynews.com - By THOM WEIDLICH - BLOOMBERG NEWS - May 14, 2005


Edward Stern, whose hedge fund traded in mutual funds through Theodore Sihpol III, an ex-Bank of America broker, testified at Sihpol's fraud trial that he now thinks his ability to trade on late information was unfair.

"Certainly in retrospect it was unfair," Stern told jurors in state supreme court. He said he never felt "entirely comfortable" with the practice that let him trade after the market closed.

Stern was the focus of a probe last fall by state Attorney General Eliot Spitzer.

The trial is the first in Spitzer's probe of the mutual fund industry.

Sihpol, 37, is accused of helping Canary engage in illegal late trading of mutual funds. With Stern's testimony, prosecutors are trying to show he and Sihpol knew late trading was illegal.

On cross-examination, Stern said in 2001, when Canary started its relationship with Bank of America, late trading was in a gray area legally.

Under Securities and Exchange Commission rules, mutual fund shares trade at the price set at 4 p.m., the end of the trading day, Spitzer says. Sihpol is accused of allowing Canary to make trades after the market closed, at that day's price, instead of waiting for the market to reopen the next day when the price might be higher.

Stern's father, billionaire Leonard Stern, owned Hartz Mountain Corp., the pet-supply company now part of Sumitomo.

When he met Sihpol it was clear the broker was not very knowledgeable about mutual funds, Stern said. "I didn't feel I was dealing with a typical market-timing broker," he said.

Sihpol was indicted last year for securities fraud, among other things, and pleaded not guilty.

Defense lawyers have said late trading was legal and that their client never intended to commit a crime.

He faces a maximum of 30 years in prison and a fine of $200,000 if he is convicted.

[FaGal]

'Unfair' trading practice bared
Key witness testifies in mutual-fund case
www.nj.com - May 14, 2005 - BY MATTHEW FUTTERMAN - Star-Ledger Staff

Key witness testifies in mutual-fund case

NEW YORK -- "Nice insurance."

That is how former hedge fund manager Edward Stern liked to refer to his ability to trade mutual funds after the market officially closed, thanks to a special arrangement with Bank of America.

"In the event a significant company announces its earnings after 4 p.m., it can change the direction of the market," Stern said yesterday in a Manhattan courtroom, describing publicly for the first time how he essentially could play stock market roulette knowing where the ball would land.

"We could avoid market sell-offs that would occur because of news after 4 p.m., and participate in market rallies that occurred because of that news."

New York State Attorney General Eliot Spitzer has described Stern, a reclusive heir to his family's Hartz Mountain Industries fortune, as the key witness in the late-trading and market-timing scandal that rocked the once-staid mutual fund industry.

Stern, whose now-closed Canary Capital hedge fund was in Secaucus, testified at the trial of former Bank of America trader Theodore Sihpol. During nearly three hours of testimony, he spoke in precise, cold language about the late-trading arrangements that allowed Canary to pocket hundreds of millions of dollars in profits as the stock market entered a tailspin in 2001 and 2002.

Stern's testimony was part of a deal he cut with Spitzer that included a $40 million fine and full cooperation with the attorney general's investigation.

Stern wore a tailored gray suit and a dark blue tie as he strode into a setting most unfamiliar to a member of one of the country's wealthiest families -- a shabby criminal courtroom lit by a dozen half-broken fluorescent fixtures.

"In retrospect, it was unfair," Stern said, his hands clasped as he leaned forward in the witness chair, stealing tense glances at the jury but never at Sihpol. "But as a market participant and a hedge-fund manager, my job was to take the least amount of risk for the most gain."

Sihpol, a broker in Bank of America's private client services division, is the only person to be charged in the mutual funds investigation, which has produced $2.9 billion in fines, including a $675 million settlement with Bank of America. Sihpol faces up to 30 years in prison for grand larceny, securities fraud and falsifying business records.

To win a conviction, prosecutors must convince jurors Sihpol conspired to commit a crime, rather than simply institute what appeared to be a company-approved practice.

According to Stern's testimony, Sihpol was just one of many executives at Bank of America who helped lure Canary's and the Stern family's business by allowing him to trade after the stock market closed. In fact, Stern acknowledged that when Sihpol first reached him on a cold call in January 2001, the broker wanted only to help manage the Stern family's wealth. He knew almost nothing about the late trading of mutual funds, or another arrangement called market timing, in which investors are allowed to buy and sell mutual funds often even though they are supposed to be long-term investments, Stern testified.

Four months later, at two lengthy meetings at Bank of America's offices in New York, several of the bank's executives, including Sihpol's boss Mike Tierney, told how the bank could help him time and late-trade mutual funds, Stern said.

Sihpol was largely silent during those meetings, Stern testified. Meanwhile, a Bank of America technician, Matt Agugliaro, explained how they could install a computer terminal at Stern's office that would allow him to place his own trade orders as late as 6:30 p.m.

"Matt said we would be set up like a branch of Bank of America," said Stern, who claimed he and executives at the bank spoke openly about their arrangement.

For the next two years Sihpol's trading desk served as the communications center between Bank of America and Canary, though many others paid close attention to such an important client, according to Stern. He said he even met for coffee with bank Chairman Kenneth Lewis.

Then, in 2003, Charles Bryceland, the head of Bank of America's New York office, accompanied Sihpol to a meeting in Secaucus to discuss a new arrangement that might limit Stern's late trading.

By then, with hundreds of millions of dollars invested with Bank of America, Stern said, he was growing more uncomfortable with his late-trading advantage, but clearly not uncomfortable enough to stop, or to tell Sihpol he felt they were doing something wrong.

"I told them I was very happy with their level of service and I didn't want it to change," said Stern, who would close his hedge fund and return his investors' money in May 2003 as other mutual fund companies began to limit his late trading.

"Did you ever tell Ted Sihpol that your discomfort was growing?" asked Sihpol's defense lawyer, Paul Shectman.

"No," Stern said.

[FaGal]

Witness calls Sihpol central to Canary case
www.boston.com - By Reuters - May 17, 2005


NEW YORK - Former Bank of America Corp. broker Theodore Sihpol was the ''point person" in helping the Canary Capital Partners LLC hedge fund trade mutual funds illegally, a onetime trader for the hedge fund testified yesterday.

Questioned at Sihpol's fraud trial, the trader, Andrew Goodwin, said he was responsible for executing trades under the supervision of Noah Lerner, a former Canary executive. Goodwin worked for Canary while the hedge fund set up the relationship with Bank of America.

But Sihpol's lawyers presented evidence that neither Goodwin nor Sihpol kept Canary's trading secret. The lawyers have maintained that the trades were at the time considered proper, and that Sihpol never intended to commit a crime.

Edward Stern, who once ran Canary, last Friday testified that he never explicitly told Sihpol that he wanted to trade mutual funds after hours but at 4 p.m. prices, known as ''late trading."

But Stern said he grew increasingly uncomfortable about the practice, which helped Canary post market-beating returns. ''In retrospect, it was unfair," he said.

The 37-year-old Sihpol was accused in a 40-count indictment of helping Canary make improper trades in and out of funds, including late trading, and thus harming ordinary investors.

The trial, in Manhattan state supreme court, is the first from New York Attorney General Eliot Spitzer's investigation of the $8 trillion mutual fund industry.

If convicted of grand larceny, fraud, and falsifying records, Sihpol could face up to 30 years in prison.

Testifying for the prosecution, Goodwin said some Canary orders were placed manually, and others electronically. Like Stern, Goodwin said a bank employee, Matt Augugliaro, indicated that Canary could trade funds electronically as late as 6:30 p.m. and yet still get the 4 p.m. price.

This could let Stern trade based on late-breaking news, but at prices that didn't reflect that news.

Prosecutor Stephen Antignani reviewed a series of manual Canary trades processed after the 4 p.m. market close. For each, jurors saw a pre-4 p.m. e-mail to Sihpol showing some trades ''proposed" by Goodwin.

They then saw a transcript of a post-4 p.m. conversation between Goodwin and either Sihpol or the broker's assistant, Andrea Wenner, authorizing all or some of the trades.

In a July 25, 2001, conversation, for example, Goodwin said ''Uh, all of our trades are good today," and Sihpol indicated he understood. But on cross-examination, defense lawyer Paul Shechtman showed e-mails and phone transcripts suggesting that others at the bank were aware of activities involving Canary.

Goodwin said he left Canary in December 2001 in a dispute over compensation, and now lives in Florida.

Also testfying yesterday was James DeAlto, a former Bank of America broker-dealer services executive now at Citigroup Inc.'s global markets unit.

He discussed the contacts between his unit and Bank of America's private client services unit, where Sihpol worked.

Charlotte, N.C.-based Bank of America, the number two US bank, fired Sihpol and others in September 2003 after Spitzer filed his complaint against Canary.

Canary, which was based in Secaucus, N.J., settled with Spitzer for $40 million.

[FaGal]

Late Trading by Employee Could Mean Bank's Eviction
www.law.com - Anthony Lin - New York Law Journal - May 18, 2005

Judge says same rules apply as in drug deals, prostitution


A Manhattan judge has ruled that if accused "late trading" broker Theodore Sihpol is convicted, the same laws used to summarily evict drug dealers and prostitutes from their apartments can also be used to throw his former employer, Banc of America Securities, out of its Midtown headquarters.

In a novel decision, Civil Court Justice Joan Kenney said New York's Real Property Actions and Proceedings Law §715, which gives landlords the right to evict tenants conducting illegal activities, and Real Property Law §231(1), which provides for lease termination, could apply to white-collar crimes as well as drug dealing, gambling or prostitution.

"t is not a leap in logic to suggest that the crimes Sihpol is accused of, as well as BAS' acquiescence, if any, to the alleged late trading scheme, could trigger the provisions of RPL §231(1) and RPAPL §715, thereby creating a forfeiture of BAS' lease as a matter of law," Justice Kenney wrote in Solow Building Co. v. BAS, L&T 105656/04.

Sihpol, now on trial in Manhattan Supreme Court, is facing charges of grand larceny, securities fraud and falsifying business records for allegedly facilitating mutual fund trading by the Canary Partners hedge fund after the market closes, giving the hedge fund an advantage over individual investors.

The prosecution by the office of Attorney General Eliot Spitzer is the first criminal case to arise from Spitzer's probe of abuses in the mutual fund industry. BAS paid a $675 million fine to settle with Spitzer. Sihpol's lawyers claim his superiors at the bank knew of and ratified his actions.

BAS is the New York-based investment banking division of the Bank of America Corp. Though the bank has announced plans to move to a still-unbuilt tower near Times Square, its main New York office is at 9 West 57th Street, where it leases 650,000 square feet.

But the bank has had an acrimonious relationship with the building's owners, the Solow Building Co. Disputes have arisen over renovations carried out by the bank as well as electricity charges assessed by the landlord. Separate litigation arising from those disputes is pending in Manhattan Supreme Court.

Solow brought its action under RPAPL §715 last year and BAS moved to dismiss the case and sanction the plaintiff's lawyers. The bank argued that the section applied only to those businesses whose "fundamental nature" was illegal and that the allegations in indictment against Sihpol were attributable only to him.

On procedural grounds, the bank also argued that the action was duplicative of the Supreme Court action and should, in any case, be transferred to the Supreme Court's Commercial Division because of that division's greater expertise.

The language of RPAPL §715 refers to "any illegal trade, manufacture or other business" as grounds for termination of a lease, but the provision has been used almost exclusively to oust drug dealers and prostitutes from residential premises.

In denying BAS' motion to dismiss, Justice Kenney acknowledged the case represented an expansion of the application of RPAPL §715 and RPL §231(1), but she noted that the laws had recently been applied to enterprises engaged in the manufacture of counterfeit goods.

"The court's research indicates that petitioner's attempt to void BAS' tenancy, based on the criminal allegations that have been levied against Mr. Sihpol, and BAS' apparent acquiescence, is an audacious proposition," she wrote. "Such business practices may provide the requisite legal bases for BAS' eviction; however, the question of whether such an application is appropriate can only be determined after a trial."

She rejected BAS' procedural arguments, distinguishing the §715 claim from the Supreme Court case and stating that Civil Court was the proper forum for such matters.

She stayed trial in the matter pending a verdict in the Sihpol trial, which is expected to continue for several weeks.

Stewart Sterk, a professor of real estate law at the Benjamin N. Cardozo School of Law, said he did not believe the judge's interpretation of the law was valid.

"I don't think an appellate court will buy it," he said. "These kinds of laws were created to address drug dealers and other criminals who scared other tenants or created a bad environment in their building. White-collar crimes don't tend to have that effect."

Solow was represented by the firm of Borah, Goldstein, Altschuler, Schwartz & Nahins. BAS was represented by Davis Polk & Wardw

[FaGal]

Janus hasn't sued over trades
www.rockymountainnews.com - By Thom Weidlich - Bloomberg News - May 19, 2005

Testimony could support claim broker didn't cause loss


The chief compliance officer of Janus Capital Group Inc. testified Wednesday at the fraud trial of Theodore Sihpol III that his company has yet to sue over late mutual-fund trades Sihpol made for a now-defunct hedge fund.

Prosecution witness David R. Kowalski told jurors about late trades made in Janus' mutual funds by Sihpol, then a broker with Bank of America Corp., on behalf of New Jersey-based Canary Capital Partners LLC.

"There's discussion about possible lawsuits and insurance claims relating to Bank of America," Kowalski told jurors in New York state court in Manhattan. "Up until now, management has not made a final decision."

Kowalski's testimony may lend support to defense contentions that the mutual funds didn't lose money as a result of Sihpol's trades. Prosecutors contend that the trades were fraudulent.

Prosecutors asked Kowalski to clarify what he meant when he told Sihpol's lawyers that Janus had taken no action "to date." Kowalski said Janus hasn't decided yet whether it will file claims with regulators or insurers over any losses from the trades.

New York State Attorney General Eliot Spitzer brought charges against Sihpol, 37, for allowing Canary to place trade orders after 4 p.m., when the market had closed. Sihpol's case is the first one stemming from Spitzer's mutual-fund probe to go to trial.

Under U.S. Securities and Exchange Commission rules, mutual-fund shares trade at the price set at 4 p.m., the end of the trading day, Spitzer said.

Sihpol is accused of allowing Canary to make trades after the market closed, at that day's price, instead of waiting for the market to reopen the next day when the prices may have changed.

Sihpol was indicted last year for larceny, securities fraud and falsifying business records and has pleaded not guilty. His lawyers have said that late trading was legal and that their client never intended to commit a crime. Sihpol faces a maximum of 30 years in prison and a fine of $200,000 if he is convicted. The trial is expected to end sometime in June.

[FaGal]

Prosecution wraps up case in Sihpol trial
www.mercurynews.com - Associated Press - May 23, 2005


NEW YORK - Prosecutors in the criminal trial of former Bank of America broker Theodore C. Sihpol rested their case on Monday, after examining several final witnesses.

The court heard testimony by executives from two mutual-fund firms early in the day, and prosecutors called as their final witness a Bank of America human relations executive who gave details of Sihpol's work history and his compensation at the bank.

Shon Manasco, the Bank of America executive, indicated that Sihpol's salary at the bank rose sharply during the few years he worked there. The former broker received just under $700,000 during 2003, the final year he worked there, Manasco said. That compared with around $165,000 in 2001, and $500,000 in 2002, Manasco said. Sihpol joined Bank of America late in 2000.

Sihpol, 37, is accused of helping Canary make improper trades in and out of mutual funds. Canary paid $40 million to settle fund-trading charges with regulators, and Bank of America paid hundreds of millions of dollars, leaving Sihpol as the lone individual to face possible criminal sanctions in the matter. If convicted, he faces up to 30 years in prison.

The case hinges on a series of trades Sihpol allegedly helped the hedge fund make after mutual-fund trading closed at 4 p.m. Trading after hours, a practice known as late trading, can allow a privileged group of investors to make a profit not available to other shareholders of a mutual fund. Traders essentially make investments at old prices based on new information. Late traders are able to profit from events - for example, a positive corporate earnings statement - that occur after the market closes.

Ordinary investors in Nations Funds Trust, Pimco Funds, MFS Funds, the Janus Investment Fund, the Alger Fund and the RS Investment Trust were defrauded of millions of dollars as a result of the trades, according to New York Attorney General Eliot Spitzer, whose office brought the charges.

Defense lawyers have argued that Sihpol was a junior broker who wasn't well versed in mutual-fund trading, and who cleared any new or unknown procedures through his bosses.

On Monday, Manasco told prosecutor Stephen Antignani that Sihpol became licensed to buy and sell securities in 1994, and worked at a number of financial firms, including Dean Witter, Lehman Bros. and CIBC, before starting work at Bank of America in late 2000.

The Sihpol trial, in state supreme court, is expected to last another three or four weeks.