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New York Attorney General Eliot Spitzer announced Wednesday he was dropping criminal charges against former Banc of America securities broker Theodore Sihpol, who had been accused of helping large institutional investors illegally engage in mutual fund “late trading.” Earlier in the day, Sihpol, 38, had settled civil charges by the Securities and Exchange Commission, agreeing to a $200,000 fine and a five-year ban from the securities industry. “In light of the penalty and the bar imposed by the SEC and Mr. Sihpol’s statement in court today, we believe the interests of justice have been served and no further proceedings are necessary,” Darren Dopp, a spokesman for the attorney general, said Wednesday. Dopp said he was referring to Sihpol’s statement in court that he now recognized his conduct had given one of his hedge fund clients, Canary Capital, an unfair advantage over other investors. Canary Capital was run by Edward Stern, whose father, billionaire Leonard Stern, owned Hartz Mountain Corp., the pet-supply company that is now part of Sumitomo Corp. Stern and Canary Capital paid $40 million to settle charges against them. In June, Sihpol was acquitted of 29 out of 33 criminal charges brought against him by Spitzer, with a Manhattan Supreme Court jury deadlocked on the remaining four counts. Spitzer subsequently re-filed those counts. The attorney general’s office has maintained that “late trading,” the practice by which brokers allowed large investors to place trades of mutual fund shares after the 4 p.m. market close, is a crime because it disadvantages smaller investors, who must wait until morning to make their trades. While several hedge funds settled charges with Spitzer and a number of individuals pleaded guilty, Sihpol was the only defendant in the late-trading probe to go to trial. His lawyer, Paul Shechtman of Stillman & Friedman, had argued that it was unclear that late trading was illegal. “I’m happy that the attorney general’s office reached the right decision, even if it took them a while to get there,” said Shechtman. “For Ted Sihpol, this is a very happy ending.” Sihpol was also represented by C. Evan Stewart of Brown Raysman Millstein Felder & Steiner. Sihpol’s acquittal was widely regarded as a blow to Spitzer’s reputation as an antagonist of white-collar criminals, and his decision to drop charges may be similarly perceived. But Dopp said the June verdict was “one that went the wrong way” out of a long line of successes in the office’s investigation of late trading. He noted that hedge funds had paid $3.1 billion in settlements and that 13 individuals had pleaded guilty. “We would have done the same thing all over again,” said Dopp. Spitzer, who is seeking the Democratic nomination for the 2006 gubernatorial election, is expected to campaign on his record as a prosecutor of corporate misconduct.

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