SEC Settles Securities Fraud Charges Against Former Banc of America Broker - October, 2005
The Securities and Exchange Commission announced today the settlement of securities fraud charges against Theodore Charles Sihpol III, formerly a broker at Banc of America Securities LLC (BAS). Pursuant to the settlement, Sihpol has agreed to a $200,000 penalty and a five-year bar from the securities industry.
The fraud charges, brought in an administrative and cease-and-desist proceeding instituted on Sept. 16, 2003, alleged that Sihpol played a key role in enabling Canary Partners LLP, a hedge fund customer of BAS, to engage in late trading in shares of mutual funds sold by BAS and others. Late trading refers to the practice of placing orders to buy or redeem mutual fund shares after the time as of which a mutual fund has calculated its net asset value (NAV), usually as of the close of trading at 4:00 p.m. Eastern Time, but receiving the price based on the prior NAV already determined as of that day. Late trading violates the 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. In particular, the late trader obtains an advantage - at the expense of the other shareholders of the mutual fund - when he learns of market moving information and is able to purchase or redeem mutual fund shares at prices set before the market moving information was released.
The Commission alleged that Sihpol enabled Canary to place orders to buy or redeem mutual fund shares that were received by and cleared through BAS until 6:30 p.m., but that received the price previously determined as of 4:00 p.m. that day, rather than the price determined as of 4:00 p.m. the next day. In the process, Sihpol falsified, altered, destroyed, or evaded the creation of, books and records that BAS was required accurately to create, maintain and preserve.
As part of the settlement, Sihpol consented to a Commission order barring him for five years from association with any broker, dealer, or investment adviser, and prohibiting him from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter. The Commission also ordered Sihpol to cease and desist from committing or causing any violations and any future violations of the antifraud, books and records and other provisions of the federal securities laws.
Also, Sihpol consented to the entry of a judgment in federal court, in the Southern District of New York, imposing a $200,000 penalty. The judgment resolves similar allegations contained in an SEC complaint filed in federal court, which charged Sihpol with violating the antifraud provisions and with aiding and abetting BAS's violations of the broker-dealer record-keeping provisions of the federal securities laws.
Sihpol consented to the settlement without admitting or denying the allegations.