Updated from 1:30 p.m.

The former Bank of America ( BAC) broker accused of helping a hedge fund illegally trade mutual funds settled securities fraud charges with the Securities and Exchange Commission Wednesday.

The commission announced that Theodore Charles Sihpol III agreed to a $200,000 penalty and a five-year bar from the securities industry. Sihpol consented to the settlement without admitting or denying the allegations.

Subsequently, New York Attorney General Eliot Spitzer dropped criminal charges against Sihpol. Justice James Yates of New York State Supreme Court dismissed four related criminal counts against him at the attorney general's request, Bloomberg reported.

In June, a Manhattan jury acquitted Sihpol on 29 counts, including grand larceny and fraud, in a criminal case brought by New York Attorney General Eliot Spitzer. The verdict was a setback for Spitzer, a 2006 Democratic gubernatorial candidate in New York. Spitzer had said he intends to retry Sihpol on four charges for which the jury could not reach a verdict.

The charges against Sihpol, originally brought more than two years ago, alleged that the broker played a key role in enabling Canary Partners LLP, a hedge fund customer of Bank of America, to engage in late trading in shares of mutual funds sold by Bank of America as well as others.

Late trading refers to the practice of placing orders to buy or redeem mutual fund shares after the time at which a mutual fund has calculated its net asset value -- usually as of the close of trading at 4 p.m. Eastern time -- but receiving the price based on the prior NAV already determined as of that day.

Late trading violates federal securities laws concerning the price at which mutual fund shares must be bought or redeemed, and defrauds innocent investors in those mutual funds by giving to the late trader an advantage not available to other investors.

The SEC had alleged that Sihpol enabled Canary to place orders to buy or redeem mutual fund shares that were received by and cleared through Bank of America until 6:30 p.m., but received the price previously determined as of 4 p.m. that day, rather than the price determined as of 4 p.m. the next day.

The SEC claimed that Sihpol falsified, altered, and destroyed books and records in the process.

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