NEW YORK - A defense attorney in the criminal case against former Bank of America broker Theodore C. Sihpol III made his summation Tuesday, emphasizing to the jury that Sihpol never intended to commit a crime when he helped hedge fund Canary Capital Partners engage in late trading of mutual funds.
Sihpol, 37, is accused of helping Canary to trade rapidly in and out of mutual funds overseen by Bank of America in an alleged scheme that bilked long-term shareholders and generated higher fees for the bank. He faces up to 30 years in prison for grand larceny, securities fraud and falsifying business records.
In a lengthy closing argument before a crowded Manhattan courtroom that neared three and a half hours, defense attorney Paul Schectman argued that Sihpol did not believe his actions were inappropriate. In fact, he demonstrated to the jury that other employees in the bank's private client services and broker/dealer services groups knew about the trades, and made no attempt to conceal the arrangement with Canary.
Schectman pointed out that the trading requirements spelled out in Bank of America's compliance manual, an unwieldy two-to-three-inch document, made no mention of a specific time by which trades must be placed. In fact, Sihpol's attorney told the jurors, many brokerage desks execute trades well after the market close simply because of their sheer volume. "Everyone knows they are trading electronically after 6 o'clock at this bank," Schectman said, citing letters and emails that were distributed to many of the bank's employees.
While acknowledging that the bank breached its prospectus by receiving orders after the close, Schectman reminded the jury of the charges in the case. "It's not a contract case," he said. "Ted Sihpol is not on trial for violating BoA's compliance manual." He also submitted that Sihpol didn't even read the prospectuses for the funds he was selling, to which none of the prosecution's witnesses testified to the contrary.
To further support his claim that Sihpol had no criminal intent, Schectman reviewed testimony and evidence that suggested that everyone on the BoA trading desk who reported to Michael Tierney, Sihpol's supervisor, knew the specifics of the Canary arrangement and that nothing was said in code or hush tones. Schectman even placed a diagram on the overhead that showed how members of Tierney's team worked in such close proximity to one another, making it extremely difficult for the brokers not to hear each other's conversations.
In addition, Schectman said that Sihpol knew his phone calls were being recorded, and yet he spoke freely about the Canary deal. Sihpol's attorney further demonstrated that then-newbie broker Andrea Wenner, a witness for the prosecution, worked late in order to receive the Canary orders and even trained another young new employee, Stephanie Galiani, on the protocol for handling the late trades, again, in a very open fashion. "She did not take her aside and say, 'Welcome to our ongoing criminal scheme,'" Schectman said sarcastically, accentuating his point that the Canary arrangement was not a clandestine operation.
Schectman's closing argument also pointed out that the bank would not let Wenner field any of the Canary calls until she passed her Series 7 exam in May 2001. "When they knew about a rule, they followed it," Schectman said.
Schectman repeated to the jury that market timing and late trading were standard operating procedures at Canary well before Sihpol cold-called Edward Stern. He noted that Stern and Noah Lerner both testified that they had developed the trading strategy with Kaplan brokers before ever getting involved with Bank of America. Schectman also said that it was common practice for clients invested in international mutual funds, to market time, arbitrage and conduct other forms of complicated derivative trades, including two of Bank of America's other clients Trautman and Aurum.
One of the reasons Sihpol was confident that it was all on the up-and-up was because Edward Stern's father was billionaire Leonard Stern, for whom New York University's business school is named, had an excellent reputation. Lerner and Stern, who were both granted immunity by the prosecution in exchange for their testimony, testified previously that they had no intent to defraud mutual funds.
Manhattan Supreme Court Judge James Yates postponed the prosecution's closing arguments until today, partially because one of the jurors had a doctor's appointment, while another said her allergy medication was making her sleepy.
Lead prosecutor Harold Wilson is scheduled to deliver his closing argument at 9:30 a.m. this morning.
