Former NYSE Floor Broker Agrees to Settle Suit Brought by SEC

Just a day before his high-profile case was scheduled to go to trial, a former New York Stock Exchange floor broker Tuesday agreed to settle a civil suit brought by the Securities and Exchange Commission charging he violated securities laws as part of a trading scandal on the Big Board's floor in the 1990s.

The former trader, John D'Alessio, agreed to pay $200,000 and neither admit nor deny wrongdoing as part of the settlement, which is subject to review as early as Wednesday by U.S. District Court Judge Jed Rakoff. The settlement came as D'Alessio's lawyers were preparing to call top officials from the exchange to the stand next week to testify about whether they had knowledge of the trading.

D'Alessio, however, is continuing to press a lawsuit and a separate legal action against the NYSE, claiming that the exchange knew of and encouraged illegal trading by brokers on its floor in the 1990s because it profited from the activity, Amorosa said. The suit is scheduled for a hearing before the U.S. Court of Appeals for the Second Circuit Wednesday morning.

''D'Alessio is pleased to put this behind him,'' and is committed to his ongoing legal fight against the exchange, Amorosa said.

Robert Knuts, an SEC lawyer handling the agency's case against D'Alessio, confirmed the settlement Tuesday, but declined to comment on the agreement until Rakoff has reviewed it. The NYSE couldn't be reached to comment.

Attention

The D'Alessio case has attracted widespread attention in recent months, partly because it has kept alive the floor trading scandal the exchange hoped had been put to bed in 1999. D'Alessio was one of 10 former floor brokers and brokerage officials who were arrested in 1998 and charged by the U.S. attorney's office with illegally sharing in the profits of trades they made on the exchange floor. The criminal charges were later dropped against D'Alessio, but all of the other former traders and brokerage officials pleaded guilty to criminal charges and received varying sentences, including fines and prison sentences in some cases.

The scandal revolved around a type of trading called ''flipping'' which many floor traders at the NYSE took part in during the 1990s. Flipping is a maneuver in which traders make a rapid series of trades in between the quoted purchase and sale prices for securities, and make millions of dollars in the process. Federal prosecutors and the SEC charged that the traders broke the law in doing so because they took a share of the profits -- a practice that securities laws prohibit because of the unique advantage traders have by virtue of their position on the trading floor.

The NYSE itself was investigated in the trading scandal, and agreed to a settlement with the SEC in 1999. No exchange officials were charged with wrongdoing in that investigation.

The Appeal

After the criminal charges against him were dropped, D'Alessio sued the exchange. He charged that illegal trading was widespread on the floor of the exchange and that top NYSE officials were aware of it. Rakoff last year dismissed that case, but D'Alessio is now appealing that decision.

''The agreement [with the SEC] specifically gives him the right to appeal,'' Amorosa said.

In the SEC case against him, D'Alessio sought to have the NYSE named as a third-party defendant because of what he claimed was its involvement in the illegal floor trading. Rakoff dismissed that legal effort, but Amorosa said he now plans to appeal that decision as well.

Under the settlement agreement reached Tuesday, D'Alessio also accepted an injunction that prevents him from violating securities laws in the future, Knuts and Amorosa said. The agreement doesn't ban D'Alessio from the securities industry, although the SEC could choose to seek such a ban in the future. The NYSE, which also has regulatory authority, has banned D'Alessio from trading on its floor. D'Alessio has appealed that ban.