Six defendants who stood ready to plead guilty Wednesday to an illegal trading scheme on the floor of the
New York Stock Exchange
may have the arcane mechanism of stock trading itself to thank for a brief respite in the case against them.
The defendants included four floor brokers among eight arrested early last year and charged with an alleged front-running scheme involving
, a small broker-dealer. Two Oakford principals were also charged and planning to plead guilty Wednesday.
Oakford allegedly set up accounts for the brokers who then bought and sold stock ahead of large incoming buy or sell orders based on their knowledge of the pending trades, according to the criminal complaint handed down last year. Profits from the trading was supposedly split among the brokers and Oakford, the government said. Three of the eight brokers pleaded guilty last year.
Even though a relatively large crowd had filled the oak-paneled federal courtroom in Manhattan on Wednesday, it looked like a routine plea hearing for the remaining defendants.
But U.S. District Judge Jed Rakoff stopped the hearing even as defendant William Killen, Oakford's president, stood ready to make his plea. Rakoff then asked federal prosecutors about a passage in the plea agreement.
Rakoff pointed out that the agreement stated that based on the evidence available, the government had no way of determining whether a specific trade was made for the brokers' own account or by a customer's order.
"If this is true, how were you going to prove this if this went to trial?" Rakoff asked prosecutors.
The lead prosecuting attorney, Doug Jensen, said the government could prove, by witness accounts, that the brokers did make some trades without customer orders, which is illegal. However, prosecutors conceded, they couldn't determine which specific trades were illegal, nor what percentage of the brokers' trades were illegal, nor if the brokers had made or lost money on the trades.
Rakoff seemed stymied. Since the amount of illegal trading and certainly the profit made, if any, from allegedly illegal trades would weigh heavily in any sentencing, the judge said he may have to hold a separate sentencing hearing to ostensibly determine the strength of the government's case against the brokers. But a sentencing hearing also could be bad news for the defendants since the judge could impose a harsher punishment than dictated by the plea agreement. Killen's plea agreement called for a prison sentence of between 15 and 21 months, Rakoff said.
Defense lawyers, realizing this, requested a delay in the plea hearing until Thursday morning, so they could confer with their clients. The judge agreed. The defense attorneys for the six defendants declined to comment.
The court did take up one other piece of business. Charges against one broker, John D'Alessio, who wasn't among the six defendants scheduled to make a plea Wednesday, were deferred for six months. If in that time, D'Alessio stays out of trouble, the charges will be dropped.
D'Alessio's lawyer, Dominick Amorosa, said the government was pursuing the single charge of trading without customer orders against the remaining brokers because it couldn't prove the other two charges, that of trading for their own accounts or of trading for an account in which they had an interest.
It's uncertain what will happen next, Amorosa said, but he admitted it was a possibility that the brokers could withdraw their offers to plead guilty in the face of a more difficult case for the government. However, holding out for a jury trial -- scheduled to begin June 1 -- also could ultimately backfire for the defendants.
Also uncertain now is the status of an ongoing investigation closely linked to this case in which 64 more
brokers are reportedly involved. The U.S. attorney revealed last week the expanded scope of the investigation. A phone call to the Big Board wasn't returned.