Witness: Sihpol was Canary 'Point Person' for Late Trades

May 16, 2005 (PLANSPONSOR.com) - A one-time trader for Canary Capital Partners testified that former Bank of America Corp. broker Theodore Sihpol was the bank's "point person" in the relationship that allowed the hedge fund to conduct late trading transactions.

Testifying in Sihpol’s fraud trial, trader Andrew Goodwin told jurors that he was responsible for executing trades under the supervision of Noah Lerner, a former Canary executive, Reuters reported. Edward Stern, who once ran Canary, last Friday testified that he never explicitly told Sihpol that he wanted to trade mutual funds after hours but at 4 p.m. prices.

But Stern said he grew increasingly uncomfortable about the practice, and said “in retrospect, it was unfair,” helping Canary to post market-beating returns.

The 37-year-old Sihpol was accused in a 40-count indictment of helping Canary make improper trades in and out of funds, including late trading, and harming ordinary investors  (See  Ex-BoA Broker Sihpol Indicted in Scandal ). The trial, in Manhattan state Supreme Court, is the first from New York Attorney General Eliot Spitzer’s investigation of the $8 trillion mutual fund industry.

Testifying for the prosecution, Goodwin said some orders were placed manually and others electronically. Like Stern, he said a bank employee, Matt Augugliaro, indicated that Canary could trade funds electronically as late as 6:30 p.m. and yet still get the 4 p.m. price.

Prosecutor Stephen Antignani reviewed with Goodwin a series of Canary trades processed after the 4 p.m. market close.   For each of several manual trades, jurors saw a pre-4 p.m. e-mail to Sihpol showing some trades “proposed” by Goodwin.

Then the jurors saw a receipt with a time stamp before 4 p.m. showing an authorized trade. In a July 25, 2001 conversation, for example, Goodwin said “Uh, all of our trades are good today,” and Sihpol indicated he understood.

Bank of America fired Sihpol and others in September 2003 after Spitzer accused the bank of helping Canary trade funds illegally.

Canary, which was based in Secaucus, New Jersey, settled with Spitzer for $40 million. Charlotte, North Carolina-based Bank of America settled with regulators for $675 million (See Five Former BoA Employees Charged in Market Timing Probe ).