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Former Bank of America broker Theodore Sihpol III was found not guilty Thursday of facilitating late trades for a client. The jury of seven women and five men acquitted Sihpol of 29 counts of larceny, securities fraud and related charges after six days of deliberations. Manhattan Supreme Court Justice James Yates declared a mistrial on four other counts on which the jury could not reach a decision. The 37-year-old broker was the first person to stand trial arising from New York Attorney General Eliot Spitzer’s probe into the financial sector. Spitzer had accused Sihpol of facilitating late trades for hedge fund Canary Capital Partners. According to the lead prosecutor, Assistant Attorney General Harold Wilson, Sihpol was a key player in a process by which Canary Capital bought and sold shares of mutual funds after the 4 p.m. stock market closing. These trades, prosecutors contented, gave Canary an unfair advantage over other mutual fund shareholders by allowing it to trade risk free in hindsight. Spitzer accused Canary of late-trading with several other banks and mutual fund companies. Canary has paid $40 million to settle civil charges. To date, Spitzer has settled with several of the other companies, including Bank of America, which agreed to pay $675 million in March 2004. Sihpol’s lawyers, C. Evan Stewart of Brown Raysman Millstein Felder & Steiner and Paul Shechtman of Stillman & Friedman argued at trial that their client acted without criminal intent. Right from the opening statements, Stewart told jurors, “to commit the crimes charged here … there must be criminal intent.” Sihpol’s superiors at Bank of America sanctioned the trades, the defense lawyers argued, presenting the jury with the number of people who knew of and approved the late trades. The defense also pointed out that no one had ever been charged for late trading and characterized the government’s case as an “extraordinary prosecution.” The verdict comes as the first significant loss for Spitzer during his otherwise successful tenure as the state’s chief prosecutor. To date, the individuals and companies who have been targets of his probes have settled, sometimes for huge sums. Wall Street investment banks, for instance, agreed to amend their practices and paid $1.4 billion to settle charges that their analysts’ reports were tainted by conflicts of interests. And insurance broker Marsh & McLennan agreed to pay $850 million this January to settle accusations of bid-rigging. The two holdouts to date were Sihpol and former New York Stock Exchange Chairman Richard Grasso, who is slated to go on trial next year. IMPACT OF VERDICT The Sihpol verdict “has an impact” on other cases, said white-collar defense attorney Seth Farber of Dewey Ballantine, “because the leverage that any prosecutor has in negotiations … is a threat that if you don’t agree to their terms the prosecutor will indict you.” “To back it up,” Farber continued, a prosecutor must “show that he is willing to go to trial.” In that light, a successful track record in court would have boosted Spitzer’s prosecutorial credibility, said Farber, a former Southern District Assistant U.S. Attorney who was not involved in the Sihpol matter. Farber pointed out, however, that the impact of the verdict should not be overestimated. For one thing, he said, this is just one case involving an untested area of the law. Corporations are still likely to settle with the attorney general, he added, because the consequences following a defeat in the courtroom are far too great. Citing the defunct accounting giant Arthur Andersen, which did go to trial against the federal government and lost, Farber explained that corporations “as a practical matter” must cooperate with government investigators and cannot risk going to trial. Individuals accused of wrongdoing by Spitzer, on the other hand, may get a boost from Sihpol’s victory, Farber said. It remains unclear whether Spitzer will pursue a new trial on the remaining four deadlocked counts.

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