Former Bank of America Corp. broker Theodore Sihpol was indicted on 40 counts of fraud, grand larceny and falsifying business records for allegedly helping a hedge fund trade mutual funds illegally, court papers show.
The indictment, unsealed on Monday, is the latest step in New York Attorney General Eliot Spitzer’s drive to root out abuses in the $7.6 trillion mutual fund industry.
Sihpol, 36, was fired by Charlotte, North Carolina-based Bank of America in September after Spitzer said the broker helped set up the Canary Capital Partners LLC hedge fund’s trading relationship with the bank. He is scheduled to be arraigned on April 21.
“An indictment doesn’t necessarily mean that he’s guilty, or that others who haven’t been indicted aren’t going to be, or are not equally or more culpable,” said Ron Geffner, a partner at Sadis & Goldberg LLC, who is a former U.S. Securities and Exchange Commission lawyer.
In an interview, Sihpol’s lawyer, Evan Stewart, said, “Mr. Sihpol does not believe he engaged in criminal conduct. He will plead not guilty to the indictment.”
Stewart is a partner at Brown Raysman Millstein Felder & Steiner LLP.
Spitzer was not immediately available for comment. Spokeswoman Juanita Scarlett said the grand larceny counts are “B” felonies with possible prison terms of 8-1/3 to 25 years, while the other counts are “E” felonies with prison terms of up to 4 years.
Sihpol faces possible fines of at least $5,000 on each count, she said.
Late trading
Spitzer launched his fund probes last September, when he accused Bank of America of helping Canary conduct market timing and illegally trade funds after-hours at stale prices, or “late trading,” at the expense of ordinary investors.
Spitzer said Sihpol arranged to give Canary an electronic trading platform that let it trade funds as late as 8:30 p.m., yet still get the 4 p.m. price.
Sihpol’s supervisor, Charles Bryceland, praised Sihpol in an e-mail for “appropriately drawing on the firms sic resources to establish” the Canary relationship, Spitzer said.
Canary settled with Spitzer for $40 million without admitting or denying wrongdoing.
Last September, Bank of America also fired Bryceland, who ran its New York brokerage for wealthy clients, and mutual fund head Robert Gordon.
Another bank executive named in Spitzer’s complaint, asset management chief Richard DeMartini, was to depart this month, but he would be eligible for up to $4.5 million in salary, incentives and a lump sum.
Bank of America and FleetBoston Financial Corp., which it bought on April 1 for about $48 billion, last month agreed to pay $515 million and give up $160 million in fees to resolve charges related to improper fund trading.