2003 Mutual Fund Scandal - Settlements and Trials

Settlements and Trials

Nearly all of the fund firms charged by Spitzer with allowing market timing or late trading had settled with his office and the SEC between mid-2004 and mid-2005. One exception was J. W. Seligman, which chose in September 2005 to sue Spitzer in Federal court after their talks with Spitzer broke down. Seligman argued in its suit that Spitzer had overstepped his authority by attempting to oversee how Seligman's funds set their advisory fee and that the regulatory oversight of fees is left by Congress to the SEC. Separately, in August 2005 Spitzer lost the only trial arising from his investigations when a jury could not reach a verdict on all counts in a case brought against Theodore Sihpol, III, a broker with Bank of America who introduced Canary Capital to the bank. Though Spitzer threatened to retry Sihpol, he did not do so. In September 2005 Spitzer's office reached a plea bargain in a case brought against three executives charged with fraud for financing Canary and assisting its improper trading in mutual funds. That case against two Security Trust executives and one banker had appeared to be Spitzer's strongest, and the settlement seemed to reflect Spitzer's weakening hand in the wake of his defeat in the Sihpol case.