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TheStreet Open House

Sihpol Acquitted in Fund Trial

Ted Sihpol, the broker who took Eddie Stern's orders at Bank of America (BAC - Get Report) and one of the only people to face criminal charges in the mutual fund trading scandal, was acquitted on 29 of 33 counts of larceny and fraud by a jury in Manhattan on Thursday.

The jury hung on the other four counts, and the judge in the case declared a mistrial on those charges.

Sihpol was indicted in April 2004 for his role in brokering illicit mutual fund trades for Stern's Canary Capital Partners, the now-infamous New Jersey hedge fund that has played a central role in the trading scandal. Sihpol was charged with helping the hedge fund engage in illegal late trading of mutual fund shares.

Prosecutors charged Sihpol with 22 counts of falsifying business records, seven counts of grand larceny, and four securities fraud counts. The four undecided charges included falsifying business records and scheming to defraud.

A conviction on all the charges could have resulted in a maximum penalty of 30 years in prison. The charges of falsifying business records are the least serious, punishable by a maximum penalty of four years in prison.

Sihpol was the first person to go to trial in the two-year-old scandal that tainted much of the $7 trillion mutual fund industry. The verdict followed a six-week trial in New York state court and six days of jury deliberation.

The verdict is a defeat for New York Attorney General Eliot Spitzer, who owes much of his reputation for cleaning up Wall Street to his success in collecting nearly $2.5 billion in civil fines in the mutual fund investigation. Sihpol's acquittal is one of the only blemishes on Spitzer's image as a Wall Street crime-buster, and it could make it more difficult for him to extract large settlements from defendants in other cases.

The trial also was being closely watched by brokers and hedge funds implicated in the mutual fund scandal that have not yet reached settlements with regulators.

In particular, lawyers for Bear Stearns (BSC), which is facing the prospect of being civilly charged by the Securities and Exchange Commission, are believed to have kept one eye the Sihpol trial while trying to negotiate a settlement. TheStreet.com previously reported that the SEC, in a closed-door session, voted on May 25 to file charges against Bear Stearns and that it is preparing to do so if a settlement is not reached soon.

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