Ex-NYSE Floor Clerk Charged in Trading Scheme
Federal prosecutors charged a former
NYSE
floor clerk with facilitating an illegal "front-running" scheme by passing confidential trading information about stocks to a daytrader accomplice.
The indictment against Frank Furino alleges that the plot generated more than $300,000 in illegal profits from trades placed from August 2001 through December 2001.
Furino was a clerk with
Lawrence Helfant
, a Big Board floor brokerage that is now part of
Jefferies
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. Prosecutors in the Eastern District of New York did not file any charges against Furino's former employer. Furino was charged with nine counts of securities fraud and one of conspiracy to commit fraud.
The indictment charges that Furino provided information about "large orders to purchase and sell securities" to an unindicted co-conspirator with a brokerage account at
Andover Brokerage
, a daytrading firm with that at one time was based in Great Neck, N.Y.
Prosecutors allege the scheme enabled Furino's accomplice to front-run, or trade ahead of, Helfant's customers, knowing that the impending big block trades would have an impact on the price of shares of
Computer Associates
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,
Transocean
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,
Home Depot
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,
Union Carbide
and
Enron
.
Front-running is an illegal practice in which a trader has advance knowledge that an investor intends to move a big block of shares and seeks to capitalize on the advantage by buying or selling ahead of the transaction. Big block trades usually affect a stock's price, particularly in smaller-cap issues.
"Furino betrayed his own firm's clients by stealing valuable, confidential information and selling it to a corrupt stock trader,'' said U.S. Attorney Roslynn Mauskopf.
The NYSE and the
Securities and Exchange Commission
also filed civil fraud charges against Furino.
The SEC complaint charged that the daytrader made cash payments of between $2,500 to $10,000 per month over the course of the scheme to Furino as a quid pro quo for providing the information.
Sources say the allegations in the Furino front-running scheme are similar to ones that prosecutors in Mauskopf's office are investigating in the so-called "squawk box'' inquiry involving the misuse of confidential trading information at big Wall Street firms.
In that inquiry,
first reported by
TheStreet.com
, prosecutors and the SEC are looking into allegations that stock daytrading firms paid brokers for the privilege of listening in on internal strategy calls at several big Wall Street firms.
Authorities are looking into reports that brokers gave hedge funds, daytraders and small, trading-oriented brokerages unauthorized access to internal communications in order to gather potential market-moving trading information. That investigation is also focusing on block trades.
People familiar with the squawk box inquiry say prosecutors are close to bringing charges in that investigation.