Former Bank of America broker Theodore C. Sihpol III was acquitted last Thursday of 29 criminal charges, including seven counts of grand larceny, for allegedly helping a hedge fund make illegal late trades after the closing bell.

The jury said it could not reach a verdict on the remaining four counts in what was an 11-1 impasse in favor of acquittal, prompting New York Supreme Court Justice James Yates to declare a mistrial on those counts. The charges included a first-degree scheme to defraud, violation of the Martin Act and two counts of falsifying business records. All told, Sihpol was facing up to 30 years in jail.

The judge read into the court's record a note telling him that one juror has "resisted all our appeals to reason and evidence," had "withdrawn from deliberations" and refused to discuss the case further.

"The jury agreed with us as to the evidence, and they listened to the witnesses carefully," said Sihpol's attorney Evan Stewart, a partner at Brown Raysman. "The government's witnesses turned out to be our witnesses.

"What Ted did was open and well-known - not hidden - and nobody ever said it was wrong," Stewart continued. "In fact, the Canary witnesses all testified that they had no intent to defraud anyone, and they had legal opinions that it was okay. All that is just completely inconsistent with Ted Sihpol being somebody engaged in fraud or who helped to steal $2 billion."

The case marks the first time New York Attorney General Eliot Spitzer has pursued criminal prosecution in his crusade to clean up the $8 trillion mutual fund business.

"I think it's the wrong verdict, but that's what happens when you put a real technical issue in front of a jury of laypeople," said Roy Weitz, publisher of online fund newsletter in Tarzana, Calif. "The idea that this guy didn't know what he was doing is absurd.

Weitz went on to say that he believes the case, once viewed in retrospect, will be seen as "an embarrassment for Spitzer."

"It's a setback for Spitzer," agreed Jacob Zamansky, a New York attorney who represents investors in arbitration proceedings against brokers.

"Going after the small fish rather than the big shots who bought their freedom may have alienated the jurors."

Zamansky suggested that Spitzer should have worked harder and prepared better by choosing to try the right case in court rather than trying a number of cases in the press.

Max Rottersman, president and founder of Fund Forensics, a mutual fund research firm that analyzes fees for institutional clients, said: "It was a mistake to go after [Sihpol]. It was an institutional breakdown that involved all the higher-ups."

While Sihpol has won his freedom, he is still scheduled to appear in court on June 23 to hear whether the prosecution intends to retry him on the remaining four counts.

Spitzer's office could not provide comment prior to press time.

Sihpol also faces an enforcement action from the Securities and Exchange Commission, one that was stayed until the outcome of the criminal trial, as well as a series of class action lawsuits.

(c) 2005 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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