In a crushing defeat for NY Attorney General Elliot Spitzer, a New York jury found Theodore Sihpol not guilty on charges of late trading in mutual funds.
While the late trading of mutual funds has been assumed by many to be illegal, as I have noted before, that is not necessarily true. Even so, this verdict does not mean that it is legal, it simply means that this jury did not find this defendant guilty.
What is interesting about the verdict is some of the jury's comments as reported in the Wall Street Journal. Those comments, which included calling Mr. Sihpol a "scapegoat" and a "fall guy" provide an interesting commentary on Mr. Spitzer's tactics of settling with the "big guys" and using them to go after the little fish.
Sihpol was accused of helping Canary Capital Partners make mutual fund trades after the market closed. Canary Capital paid $40 million to settle charges. Spitzer's office then used the former head of Canary Capital, Edward Stern, and another Canary Capital executive, Noah Lerner, to testify against Mr. Sihpol.
One would think that the securities prosecutors would learn what criminal prosecutors have known for decades - you cannot settle with the primary violator and attempt to use their testimony against underlyings. That has backfired a number of times.
Jurors do not appreciate the tactic, and the Sihpol case demonstrates it clearly. Jurors reportedly said that they did not believe the Canary executives, and in addition to the scapegoat comments, the WSJ is reporting that the jury forewoman hugged Mr. Sihpol's wife and shook hands with his attorney.
Those actions speak volumes about the juror's feelings toward the defendant; and the prosecution.
