Theodore Sihpol, a former Bank of America broker, was charged with grand larceny and securities fraud by Eliot Spitzer, New York Attorney General, for his alleged role in the unlawful trading of mutual funds.
Stephen Cutler, Securities and Exchange Commission enforcement director, also filed civil charges. Mr Sihpol has surrendered to authorities in New York.
Mr Sihpol is the first Bank of America employee to be charged in an investigation that came to light September 3 when Mr Spitzer announced a $40m settlement with Canary Capital Partners, a hedge fund, and its manager Edward Stern, for making improper trades in funds managed by Bank of America, Janus, Bank One, and Strong.
The hedge fund was allowed to buy mutual funds at prices not available to all investors through a process called late trading.
The attorney general expanded his probe of mutual fund trading and the SEC followed suit, demanding information from 80 of the biggest fund companies. More charges could be filed against other people or entities, Mr Spitzer said at a press conference yesterday.
If convicted of the grand larceny charge, Mr Sihpol would face a mandatory state prison term. The SEC charges could result in fines and Mr Sihpol’s being barred from the securities industry.
Late trading involves buying mutual funds at the 4pm closing price even though the order is placed after that time. Such orders should receive the price set the following day. Traders who receive this favour are able to take advantage of events that happened after the market closed but are not yet reflected in the price.
Mr Sihpol, 36, was a broker responsible for executing trades of Bank of America’s Nations Fund Trust for Canary. The bank is investigating the matter and has fired several people tied to Canary.
Bank of America said it was co-operating fully with law enforcement and regulatory agency inquiries into this matte: “We are moving diligently to address any issues within our company in order to maintain the trust of our customers.”
Mr Sihpol and two others listed in Mr Spitzer’s complaint about Canary have since been sacked though Richard DeMartini, head of asset management, remains working.
The SEC and Mr Spitzer used the announcement of charges as an opportunity to show that despite recent bickering about who should take on the financial services industry, they can work together. William Donaldson, SEC chairman, on Sunday pledged to work with state regulators to enforce securities laws.
“I am pleased that the staff of the Commission and Attorney General Spitzer were able to work closely and co-operatively in bringing today’s important actions,” Mr Cutler said in a statement.
Need Legal Help?
New York City, Long Island, New Jersey, and Florida
Our personal injury lawyers in New York City are here to help you when you need it the most.