Theodore Sihpol III, an ex-broker for Bank of America, either knowingly participated in hedge fund Canary Capital Partners' illegal mutual fund trading, and profited from it, or was a mere "order taker" who "stole nothing," and had no idea that what he did was wrong, according to opening statements at Sihpol's trial last Monday.
Sihpol, 37, is charged with grand larceny and securities fraud, and faces up to 25 years in prison. His case is deemed important because he is the first defendant to be tried in criminal court as a result of New York State Attorney General Eliot Spitzer's nationwide investigation of the mutual fund industry, begun on Sept. 3, 2003.
To win the trial, held before Judge James Yates at New York State Supreme Court in Manhattan, the government must show that its charges are true beyond a reasonable doubt.
Harold J. Wilson, the lead prosecutor for Sihpol's trial, told jurors that the broker knew he was committing a crime when he helped Canary Capital, run by Edward J. Stern, make mutual fund trades after the 4 p.m. market close between May 2001 and July 2003. The practice, more commonly known as late trading, is illegal. Wilson also said that Sihpol had trading tickets stamped to appear as if the transactions took place before the 4 p.m. deadline.
The government alleges that Sihpol stole more than $1 million, through $2.3 billion worth of trades, from six mutual funds: Nations Funds Trust, which is associated with Bank of America; PIMCO Funds; MFS Family of Funds; Janus Investment Fund; Fred Alger Fund; and RS Investment Trust. Wilson, however, did not specify how Sihpol did so.
Sihpol's attorney, C. Evan Stewart, told the jury his client was an "order taker," a "guy at the bottom of the totem pole."