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U.S. Attorney Indicts 15 for NYSE Securities Fraud

By Fox News
Published | Updated

NEW YORK – The U.S. Attorney for the Southern District of New York Tuesday indicted 15 current and former New York Stock Exchange (search) specialists, charging them with securities fraud.

The Securities and Exchange Commission (search) also took enforcement action against 20 former NYSE specialists accused of fraudulent trading, including two former chief executives of Spear Leeds & Kellogg Specialists and four former members of Van der Moolen Specialists management committee.

Spear Leeds is a unit of Goldman Sachs Group Inc. (GS). Van der Moolen Specialists is part of Netherlands-based Van der Moolen Holding (VDM).

Exchange specialists, or floor traders, buy and sell certain issues on the NYSE floor and are supposed to step into the market to dampen volatility and add liquidity.

The U.S. Attorney's Office in a statement said the 15 were charged with "violating federal securities laws through patterns of fraudulent and improper trading over approximately four years."

If convicted, the defendants could face jail terms of 10 to 20 years and fines of $1 million to $5 million, or twice the gross gain or loss resulting from the improper trades, the U.S. Attorney's Office said.

The SEC accused 20 former NYSE specialists of carrying out fraudulent and other improper trading activities between 1999 and mid-2003.

"These individuals violated the public trust by abusing the privileged position they had as specialists on the New York Stock Exchange," Stephen M. Cutler, director of the SEC's Division of Enforcement, said in a statement. "We have zero tolerance for specialists who trade for their firm's proprietary account when they should be trading for the accounts of their customers."

The SEC said it started administrative and cease-and-desist proceedings against the specialists for executing orders for their own firms ahead of orders for public customers that were placed through the NYSE electronic trading system.

In addition to Spear Leeds and Van der Moolen, firms which had employed the individuals named by the SEC included Fleet Specialist, a unit of Bank of America Corp. ; Bear Wagner Specialists, a unit of Bear Stearns Cos (BSC), and LaBranche & Co. (LAB).

The SEC said the proceedings will later determine the amount of civil penalties and disgorgement to be sanctioned against the defendants.

In a separate action, the NYSE settled with the SEC charges that it failed to properly police its floor traders. The NYSE agreed to establish a $20 million fund to finance regulatory audits every two years through 2011.

Reuters and the Associated Press contributed to this report.