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A Manhattan judge has ruled that if accused “late trading” broker Theodore Sihpol is convicted, the same laws used to summarily evict drug dealers and prostitutes from their apartments can also be used to throw his former employer, Banc of America Securities, out of its Midtown headquarters. In a novel decision, Civil Court Justice Joan Kenney said New York’s Real Property Actions and Proceedings Law �715, which gives landlords the right to evict tenants conducting illegal activities, and Real Property Law �231(1), which provides for lease termination, could apply to white-collar crimes as well as drug dealing, gambling or prostitution. “[I]t is not a leap in logic to suggest that the crimes Sihpol is accused of, as well as BAS’ acquiescence, if any, to the alleged late trading scheme, could trigger the provisions of RPL �231(1) and RPAPL �715, thereby creating a forfeiture of BAS’ lease as a matter of law,” Justice Kenney wrote in Solow Building Co. v. BAS, L&T 105656/04. Sihpol, now on trial in Manhattan Supreme Court, is facing charges of grand larceny, securities fraud and falsifying business records for allegedly facilitating mutual fund trading by the Canary Partners hedge fund after the market closes, giving the hedge fund an advantage over individual investors. The prosecution by the office of Attorney General Eliot Spitzer is the first criminal case to arise from Spitzer’s probe of abuses in the mutual fund industry. BAS paid a $675 million fine to settle with Spitzer. Sihpol’s lawyers claim his superiors at the bank knew of and ratified his actions. BAS is the New York-based investment banking division of the Bank of America Corp. Though the bank has announced plans to move to a still-unbuilt tower near Times Square, its main New York office is at 9 West 57th Street, where it leases 650,000 square feet. But the bank has had an acrimonious relationship with the building’s owners, the Solow Building Co. Disputes have arisen over renovations carried out by the bank as well as electricity charges assessed by the landlord. Separate litigation arising from those disputes is pending in Manhattan Supreme Court. Solow brought its action under RPAPL �715 last year and BAS moved to dismiss the case and sanction the plaintiff’s lawyers. The bank argued that the section applied only to those businesses whose “fundamental nature” was illegal and that the allegations in indictment against Sihpol were attributable only to him. On procedural grounds, the bank also argued that the action was duplicative of the Supreme Court action and should, in any case, be transferred to the Supreme Court’s Commercial Division because of that division’s greater expertise. The language of RPAPL �715 refers to “any illegal trade, manufacture or other business” as grounds for termination of a lease, but the provision has been used almost exclusively to oust drug dealers and prostitutes from residential premises. In denying BAS’ motion to dismiss, Justice Kenney acknowledged the case represented an expansion of the application of RPAPL �715 and RPL �231(1), but she noted that the laws had recently been applied to enterprises engaged in the manufacture of counterfeit goods. “The court’s research indicates that petitioner’s attempt to void BAS’ tenancy, based on the criminal allegations that have been levied against Mr. Sihpol, and BAS’ apparent acquiescence, is an audacious proposition,” she wrote. “Such business practices may provide the requisite legal bases for BAS’ eviction; however, the question of whether such an application is appropriate can only be determined after a trial.” She rejected BAS’ procedural arguments, distinguishing the �715 claim from the Supreme Court case and stating that Civil Court was the proper forum for such matters. She stayed trial in the matter pending a verdict in the Sihpol trial, which is expected to continue for several weeks. Stewart Sterk, a professor of real estate law at the Benjamin N. Cardozo School of Law, said he did not believe the judge’s interpretation of the law was valid. “I don’t think an appellate court will buy it,” he said. “These kinds of laws were created to address drug dealers and other criminals who scared other tenants or created a bad environment in their building. White-collar crimes don’t tend to have that effect.” Solow was represented by the firm of Borah, Goldstein, Altschuler, Schwartz & Nahins. BAS was represented by Davis Polk & Wardwell.

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