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Wall Street crime buster Eliot Spitzer appears to have lost some of his fighting spirit.

On Tuesday, the New York Attorney General netted two more guilty pleas in the mutual fund trading scandal, bringing the number of individuals convicted by Spitzer's office in the two-year-old investigation to nine.

But the big news is that the plea deals negotiated by Spitzer's office with Grant Seeger and William Kenyon do not require either defendant to serve jail time. Instead, Spitzer has agreed that the former top executives of

Security Trust

, a defunct trust bank that processed abusive trades for two big hedge funds, can be sentenced in October to five years probation. Both men also will each pay a $50,000 fine.

Seeger, the former chief executive officer of Security Trust, pleaded guilty to two felony charges. Kenyon, the bank's former president, pleaded guilty to one felony charge. If both men had gone to trial on Sept. 26 and were convicted, each could have been sentenced to serve up to 25 years in a state prison.

Brad Maione, a Spitzer spokesman, declined to comment on the plea deal.

The rather light penalties, however, may be indication that Spitzer is hoisting a white flag in some of the unresolved mutual fund cases after his big defeat in June in the Ted Sihpol trial.

In stunning blow to Spitzer's image as a take-no-prisoners prosecutor, a New York jury acquitted the former

Bank of America

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broker on 29 counts of larceny, falsifying business records and other offenses related to mutual fund trading. The jury deadlocked on four other counts. Spitzer has vowed to retry Sihpol on those remaining charges. But most legal experts believe the New York prosecutor is bluffing and will eventually dismiss the case, in light of the jury's overwhelming verdict in favor of Sihpol.

Indeed, lawyers for Seeger and Kenyon say Spitzer's office became much more amenable to cutting a deal after the Sihpol verdict. Before the Sihpol trial, Spitzer's prosecutors had been reluctant to discuss any plea deal for Seeger and Kenyon, who were two of the first people charged criminally in the investigation. Henry Mazurek, a lawyer for Kenyon, says prosecutors had insisted on jail time as part of any plea deal.

But after the verdict, the lawyers say, prosecutors began singing a different tune.

"After Sihpol they offered a nonjail sentence,'' says Susan Necheles, the lawyer for Seeger. "They recognized, after the verdict, the fundamental flaws in their case.''

Indeed, in pleading guilty neither Seeger nor Kenyon admitted in court to helping the hedge funds engage in late trading of mutual funds, the most serious allegation prosecutors had leveled against them in the original 98-count indictment. Instead, both men only admitted to helping

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Canary Capital Partners


Samaritan Asset Management

hide their market-timing trades from a variety of mutual funds.

Market-timing, or frequent trading, is legal, but it is prohibited under most mutual fund prospectuses because it can dilute the value of a portfolio's holdings. Late trading is the illegal buying or selling of mutual fund shares after the 4 p.m. close, in order to take advantage of late-breaking or market-moving news.

Some of the fund families in which Security Trust allegedly permitted the hedge funds to make were those sold by

Artisan Funds




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The Spitzer press release made no mention of the fact that Seeger and Kenyon would not serve any jail time.

Meanwhile, Paul Flynn, a former

Canadian Imperial Bank of Commerce

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investment banker, who was indicted along with Seeger and Kenyon, rejected an even more favorable plea deal, sources say. Prosecutors offered Flynn the chance to plead guilty to a misdemeanor with no jail time. But sources say the former investment banker rejected the deal, believing he stands a good chance of an acquittal at trial.

Spitzer contends that Flynn committed a crime by providing Canary and Samaritan with the financing that enabled the hedge funds to engage in late trading of mutual fund shares.

Flynn's lawyer could not be reached for comment. Flynn is scheduled to go on trial on Sept. 26.