SEC, U.S. Attorney Query the NYSE Anew on 1990s Illegal Trades
The Securities and Exchange Commission and the U.S. attorney's office in Manhattan are asking new questions about how much senior New York Stock Exchange officials might have known about or enabled illegal trading by dozens of floor brokers at the exchange in the 1990s.
At least one NYSE official was questioned late last month, more than a year after the SEC reprimanded the NYSE in a settlement agreement in which the SEC was highly critical of the exchange's role in overseeing the activities of brokers on its trading floor.
Exchange officials did not admit to wrongdoing in the 1999 settlement, but in 1998 and 1999 several brokers pleaded guilty and some were later jailed for a practice known as flipping, in which they made rapid stock trades at prices between the quoted sale and buy prices and pocketed money for themselves in the process.
The SEC and U.S. attorney's Office began questioning the exchange anew last month after the exchange suddenly produced documents about the floor trading that the SEC had sought two years ago.In addition, one of the brokers that the SEC has continued to pursue is fighting back, arguing that top exchange officials approved of and even encouraged the practice because it was good for business, and concealed evidence from the SEC. In a deposition by attorneys for that former floor trader, John D'Alessio, NYSE market surveillance rule development director Donald Siemer acknowledged participating in several meetings about the flipping issue and taking handwritten notes about them, one of which said "Do not tell the SEC" and another with the notation "nothing in writing." The notes and other documents were among those that recently surfaced and were handed over to the SEC and D'Alessio's attorneys. In his Jan. 23 deposition, Siemer said he could not recall what he had done with the notes after he wrote them, when he last saw them or many details about what they meant. He said the SEC questioned him about his handwritten notes on Jan. 17, and the U.S. attorney's office questioned him about other documents concerning the trading at the NYSE. The SEC and the U.S. attorney's office declined to comment on their questioning of Siemer or on the documents the NYSE recently produced. The NYSE would only say that it discovered the documents recently and turned them over to the SEC. Siemer didn't respond to several requests for an interview. But Dominic Amorosa, an attorney suing the NYSE on behalf D'Alessio, said in a letter to the exchange this week that the documents provide new evidence that the exchange not only knew of, but encouraged illegal trading on its floor. That the documents only surfaced recently is further proof of that, he wrote. "They were suppressed for the obvious reason that they show that senior officials of the NYSE were involved in illegal conduct concerning their approval of flipping for a share of profits," Amorosa wrote to the exchange this week. "Senior officials of the NYSE were well aware that the flipping they permitted on the floor was illegal and wanted to conceal details of it from the SEC." Amorosa is asking the NYSE to reinstate D'Alessio's trading privileges, which the exchange revoked as a result of the flipping allegations. D'Alessio is among the various brokers and brokerage executives the SEC filed a civil suit against last year involving flipping. D'Alessio sued the NYSE and three of its officers in 1999, alleging that exchange officials condoned and encouraged the illegal trading and that the NYSE also profited from it by collecting fees on the trades. The case was dismissed last year and D'Alessio has appealed. Amorosa said in a court hearing last month that the recently produced documents provide new information about the NYSE's role in the illegal trading. Amorosa contends that the NYSE allowed the practice to continue and encouraged it. The SEC's counsel agreed during the hearing that the documents were relevant to Amorosa's defense in SEC's civil suit. During the January deposition, D'Alessio's lawyers asked Siemer to explain numerous notes and other documents pertaining to meetings NYSE officials had in the early 1990s about the stock flipping practice at the exchange. Those meetings and other discussions at the exchange on the issue involved such high-ranking NYSE officers as Senior Vice President of Market Surveillance Robert McSweeney and Edward Kwalwasser, the group vice president in charge of the NYSE's regulatory group, according to Siemer's testimony. The documents appear to describe discussions top NYSE officials had about whether the flipping practice was legal, or should be stopped, according to Siemer's testimony. Siemer, in the deposition, acknowledged that in many cases the notes were in his own handwriting, but said he couldn't remember them or other details of the meetings they described. In a separate deposition taken from NYSE Chairman Richard Grasso in November by Amorosa in the SEC civil suit against D'Alessio, Grasso said he
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