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Jury Deliberates in BoA Broker Trial: Canary Tapes Could Send Sihpol Up the River

NEW YORK - Ted Sihpol's future hangs in the balance.

The jury in the criminal case against former Bank of America broker Theodore C. Sihpol III began deliberations on Thursday, as jurors spent the latter part of the week considering the 33 counts of grand larceny, securities fraud and falsifying business records hanging over the lone employee on trial for the bank's alleged trading abuses.

Manhattan Supreme Court Justice James Yates presided over closing arguments from both sides last week before sending the jury out to decide whether Sihpol had criminal intent to defraud six mutual funds when he helped Canary Capital Partners engage in a late-trading scheme that gave the hedge fund an unfair advantage over long-term shareholders. If convicted, Sihpol faces up to 30 years in prison.

The trial, in its sixth week and still up in the air as of press time, serves as a critical test for New York Attorney General Eliot Spitzer, who launched a widespread investigation of mutual fund trading practices in September 2003.

Many of the facts laid out for the jury during the course of the trial have been undisputed, which is unusual in a criminal case. The crux of the case is really Sihpol's mindset, that is, whether he acted with criminal intent to defraud.

Assistant Attorney General Harold Wilson, the lead prosecutor, argued in his summation Wednesday that Sihpol knew that Canary was making trading decisions after the market close yet willfully deceived his bosses, falsified order tickets and tried to cover his tracks to protect what was a lucrative deal.

The state attorneys claim Sihpol oversaw a two-step process in which Canary called in trades early in the day and was later permitted to execute, cancel or change the number of shares after 4 p.m., despite having submitted an order ticket with a pre-4 p.m. time stamp. As a result, Sihpol, who was fingered as the point person for Canary, took home $600,000 in compensation in 2002 and $700,000 in 2003.

Tale of the Tapes

Wilson told the jury that Sihpol is a "fraudster" who lied repeatedly even though he "knew all along it was false," which "speaks volumes on his intent." To illustrate his point, Wilson played several taped conversations Sihpol had with former Canary executive Noah Lerner, one of which the prosecution argues depicts the two trying to corroborate their story in the event that people start asking questions, "a wink-wink, nudge-nudge" maneuver of sorts.

Sihpol: Ah, one thing if it ever comes up between you and I, you need to know-I'm sure you know the right answer, but it came up today in conversation. You guys make all your investment decisions before 4 o'clock, correct?

Lerner: Absolutely.

Sihpol: OK, good. That's all I need to know.

Wilson characterized the call as "a conspiratorial act to make sure Lerner would back up his lies." Michael Brown, one of Sihpol's superiors, testified that Sihpol told him that he was getting the trades before 4 p.m. and that everything was going smoothly. Wilson argued that Sihpol intended to mislead Brown when "he left out a universe of pertinent information" related to the Canary trades including the phone calls after the bell and "the technician" who doctored the time stamps.

"Mr. Sihpol knew the rule, he just avoided it with Noah Lerner," Wilson said.

In another recorded phone conversation, Sihpol tells Lerner: "If Canary ever gets audited, and it comes out there, before 5:30, they make investment decisions after the market closes, there could be real problems as us being their brokers and not have done our due diligence...Anyway I'm just all worked up, but I just wanted you to make sure that could be an issue potentially."

Other conversations reveal that Sihpol hatched a plan to "stamp a bunch of tickets every day" prior to the market close and alter them after 4 p.m. when he received a phone call from someone at Canary. "His lies prove his intent," Wilson said, finishing up his four-hour summation.

Just Following Orders

Defense attorney Paul Schectman of New York's Stillman & Friedman delivered his closing arguments on Tuesday, telling the jury that Sihpol never intended to commit a crime and was merely acting as an order-taker who cleared all arrangements with his superiors. In fact, Schectman demonstrated to the jury that other employees in the bank's private client services and broker/dealer services groups knew about the trades, and made no attempt to conceal the arrangement with Canary.