Lawyer Wants NYSE Sanctioned for Tardiness in Turning Over Documents

The New York Stock Exchange should be sanctioned for withholding important documents from federal regulators to cover up its role in illegal trading on its floor, an attorney for a former floor broker facing civil charges over the issue told a federal judge Wednesday.

The NYSE should've turned over the documents more than two years ago when the Securities and Exchange Commission was investigating the floor trading issue, argued Dominic Amorosa, a New York lawyer representing former broker John D'Alessio.

D'Alessio is fighting charges brought by the SEC that he violated securities laws by sharing in the profits of trades he made on the exchange floor, a practice called flipping. Amorosa contends the SEC shouldn't penalize D'Alessio because the NYSE knew of and actually encouraged the illegal floor trading. The NYSE documents help demonstrate the exchange's culpability, Amorosa contended.

"The documents contain dramatic evidence that the NYSE was and is involved in federal criminal violations, including securities law violations, obstruction of justice and perjury, and it is clear they were concealed for this purpose, " Amorosa said in the motion he filed Wednesday, calling for a court hearing on why the documents weren't produced earlier.

No Merit

The NYSE, in a response it filed to Amorosa's motion, said, "The fact that they [documents] were not located and produced to the SEC earlier was unquestionably an innocent and isolated oversight."

"Our position is that Mr. Amorosa's motion is completely without merit," said Deborah Torres, a lawyer with the New York law firm Fried Frank Harris Shriver & Jacobson, which is representing the NYSE.

In its response to Amorosa's motion, the NYSE said it searched thousands of files and turned over 90,000 pages of documents to the SEC in 1998 and early 1999, during the SEC's floor trading investigation. The exchange then found additional documents related to the floor trading issue that it hadn't turned over to the SEC. It turned them over to the SEC in October and December 2000, and also last month, according to the NYSE's lawyers

The issue concerns a type of trading called flipping in which floor brokers made a series of rapid trades between the quoted purchase and sale prices on stocks, and took a share in the profits that resulted. The SEC has ruled sharing in the profits from such transactions is illegal.

In 1998, 10 floor brokers and brokerage officials were arrested and criminally charged over the floor trading. The criminal charges against D'alessio were later dropped, but the nine others pleaded guilty to various criminal charges.

Comeback

The matter appeared to have come to an end as far as the NYSE's involvement was concerned in 1999, when the exchange reached a settlement agreement with the SEC. But now, the documents the NYSE recently produced pertaining to the flipping on its floor have drawn the attention of federal securities and law enforcement authorities. The documents contain, among other things, handwritten notes concerning meetings top exchange officials had about the issue. Those included the phrase "nothing in writing," and "Do not tell the SEC."

In the filing made public Wednesday, Amorosa argues the notes are evidence of the NYSE's approval of illegal trading at the exchange.

"The NYSE wanted nothing in writing with respect to this subject, as it knew profit sharing was illegal and did not wish to make a record of the fact that it was approving the practice," he wrote.

Both the SEC and the U.S. attorney's office in Manhattan recently questioned a NYSE official about the notes and other documents. A Michigan congressman also has asked the SEC to determine why the NYSE took two years to turn over the documents.