NEW YORK (HedgeWorld.com)–New York State Attorney General Eliot Spitzer and Securities and Exchange Commission Director of Enforcement Stephen Cutler announced state criminal and federal civil charges against former Bank of America broker Theodore Sihpol III for helping New Jersey-based hedge fund Canary Capital Partners make allegedly illegal trades of mutual fund shares.
Mr. Sihpol faces a two-count criminal complaint charging him with larceny and securities fraud. Each count is a felony charge. If convicted, he would be subject to a mandatory term in state prison.
In addition, the SEC alleges that Mr. Sihpol violated the antifraud, mutual fund pricing and broker-dealer record-keeping provisions of federal securities laws. In its action, the Commission is seeking civil penalties, disgorgement and other measures, which may include permanently barring Mr. Sihpol from the securities industry.
“I am pleased that the staff of the Commission and Attorney General Spitzer were able to work closely and cooperatively in bringing today’s important actions,” Mr. Cutler said. The SEC has been concerned about state attorney generals pursuing such inquiries on their own.
“The conduct alleged is antithetical to what investors expect when they buy or sell mutual funds, which is that each of them will be treated fairly. We will continue to pursue this matter aggressively,” Mr. Cutler added, in a statement.
Mr. Sihpol was responsible for executing trades of Bank of America’s Nations Funds. The allegations involve Canary’s trading in the stock after market closing, prohibited by New York law and SEC regulation, according to the attorney general.
The investigation is continuing and is likely to result in charges against additional people. Many mutual fund companies and hedge funds other than Canary are potentially the focus of the probe.