This Washington Post article reports on the trial that is cranking up this week in New York City as New York AG (“Attorney General” or “Aspiring Governor,” take your pick) Eliot Spitzer‘s prepares to prosecute former Bank of America securities broker Theodore C. Sihpol III in connection with an alleged crime uncovered during Mr. Spitzer’s wide-ranging investigation of the financial services industry over the past three years. Here is a sampling of posts regarding the Lord of Regulation’s investigations over the past year and a half.
While more than a dozen brokerage firms and fund companies have rolled over and paid $3 billion in fines, restitution and promised fee reductions (i.e., ransom) to settle Mr. Spitzer’s investigations, Mr. Sihpol has refused to give in to Mr. Spitzer’s public relations machine. Mr. Sihpol contends that the trades that are at the heart of the criminal case against him were not illegal and that Mr. Sihpol did not have criminal intent to commit larceny, fraud and alteration of business records.
The case revolves around whether the 37 year old Mr. Sihpol knew his clients were breaking the law by putting in same-day orders after 4 p.m. In his usual public relations blitz on such cases, Mr. Spitzer has compared the the trades to betting on a horse race after it was over because the late trades allowed Mr. Sihpol’s clients to profit from news announced after the markets closed. However, the Securities and Exchange Commission regulation in place at the time of the trades did not use the words “4 p.m.” Rather, the reg simply stated that all mutual fund orders placed after a fund has computed its daily price must get the next day’s price. Inasmuch as many funds do not calculate their daily price until nearly 5:30 p.m., Mr. Siphol contends that the trades were in compliance with the regulation. In fact, an SEC survey done shortly after the scandal broke found that a quarter of brokerage firms had helped clients trade after the 4 p.m. close. New SEC rules proposed after Mr. Spitzer’s investigations into trading abuses state specifically that the trades must be placed before 4 p.m.
The risk of loss is so high that it is understandable that companies and individuals under Mr. Spitzer’s relentless public relations campaigns roll over and settle without so much as a whimper. Nevertheless, it is refreshing when an individual stands up and requires Mr. Spitzer actually to prove what he enjoys preaching about on television talk shows. Here’s hoping that the jury is not swayed by Mr. Spitzer’s glitz and examines carefully whether Mr. Spitzer’s criminalization of merely questionable business transactions is an appropriate form of business regulation.