Eliot L. Spitzer withdrew all remaining criminal charges Wednesday against Theodore C. Sihpol III, the former Banc of America Securities LLC trader who last spring forced the New York attorney general to take him to trial and won a dramatic acquittal on charges of illegal after-hours trading.
Wednesday's action, in New York state court, came hours after the Securities and Exchange Commission announced that Sihpol had settled related civil securities fraud charges and agreed to pay a $200,000 fine and be banned from the securities industry for five years.
The twin deals mark the end of complicated negotiations between Sihpol's lawyers and regulators and something of a retreat for Spitzer, who had said he would retry Sihpol unless he admitted wrongdoing in his deal with the SEC.
Under the terms of the SEC deal, Sihpol agreed to findings that from 2001 to 2003 he helped a hedge fund and Bank of America customer, Canary Capital Partners LLC, illegally trade mutual funds after the stock market had closed and that he falsified records. But, as is customary in SEC settlements, Sihpol agreed to the terms without admitting or denying wrongdoing.
Instead, in an appearance before a New York state judge, Sihpol made this statement: "I now recognize and regret that my conduct helped give Canary Capital an unfair trading advantage over other Bank of America mutual fund shareholders."
The case against Sihpol was part of a broader investigation of charges that mutual funds allowed favored clients to trade after hours and profit from late-breaking news at the expense of other shareholders. Last year, Bank of America Corp. agreed to pay $375 million to settle a related SEC case. A Bank of America spokeswoman yesterday declined to comment on the outcome of the Sihpol case.
Sihpol is so far the only criminal defendant in a high-profile fraud case to force Spitzer to prove his charges at trial. Other defendants in investigations into fraudulent stock research on Wall Street, abuses in the mutual fund industry, and alleged bid-rigging and questionable accounting in the insurance industry resolved charges with guilty pleas or civil settlements. Some legal experts have criticized Spitzer's tactics, saying the attorney general improperly uses the threat of criminal penalties to coerce civil settlements.
Sihpol's decision to go to trial paid off in June when a jury acquitted him on most of the charges. It remained deadlocked on four. On those the jury had voted 11 to 1 to acquit, according to Sihpol's lawyer, C. Evan Stewart.
Stewart said that Wednesday was a "good day" for his client.
"Today, Ted resolved all of his outstanding issues with the government," Stewart said. "As a result of these matters, Ted is now free to go and do something different with the rest of his life without any government issues hanging over his head."
Darren Dopp, a spokesman for Spitzer's office, said that in light of the SEC penalties and Sihpol's court statement, "we believe the interests of justice have been served and that no further proceedings are necessary."
Mark K. Schonfeld, regional director of the SEC's Northeast office, said the outcome represents a "substantial sanction" against Sihpol and an "appropriate resolution" of the agency's case.
Some legal experts said yesterday's outcome calls into question whether Spitzer should have brought criminal charges at all, especially given the murky state of the law on after-hours trading.
"The resolution of the case on such favorable terms for the defense certainly calls into question whether Sihpol should have been indicted in the first place," said Evan T. Barr, a former federal prosecutor and a partner with Steptoe & Johnson LLP in New York.
But John Carroll, another former federal prosecutor and partner with Clifford Chance LLP in New York, said the resolution was not surprising given the attorney general's need to conserve scarce resources.
"What drives everybody post-verdict, post-hung-jury, is a desire to wrap it up and move on," he said.