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Charges Filed Against Bank of America Employee In Mutual Fund Case

Sep 16, 2003 | AP New York prosecutors filed the first criminal counts Tuesday in their investigation of mutual fund trading practices, charging a former Bank of America broker in a scheme that they said cost investors tens of millions of dollars.

Attorney General Eliot Spitzer announced the grand larceny and securities fraud charges against Theodore Sihpol III, 36, who surrendered to authorities Tuesday morning in New York. At the same time, the Securities and Exchange Commission announced civil charges against Sihpol.

Spitzer said the charges were the first of several expected in the mutual fund probe.

Authorities allege Sihpol helped a hedge fund gain special trading opportunities known as late trading, in which mutual fund shares are bought at the 4 p.m. price after the market closes. Late trading is prohibited by New York law and SEC regulations. Ordinary investors who place late orders must pay the following day’s price.

"Our combined message is clear: Late trading is wrong," SEC enforcement director Stephen Cutler said at the joint news conference announcing the civil and criminal cases.

If convicted, Sihpol faces eight to 24 years in prison.

A Bank of America spokesman said the company is cooperating fully with investigators.

The company announced last week that it had fired Sihpol along with several other employees, including the head of its mutual fund business, Nations Funds.

The case stems from Spitzer’s investigation of Canary Capital Partners, a hedge fund that agreed to pay $40 million to settle charges that it had improper trading arrangements with several mutual fund companies, including Bank of America. Spitzer alleges Canary received the special arrangements by promising to make substantial investments in various funds managed by the companies.

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