New York Stock Exchange
floor brokers involved in the 1998 illegal trading scandal are waging campaigns for a deeper investigation of the exchange's trading practices, a probe they contend would implicate more Big Board members and executives.
One of the nine NYSE brokers nabbed in the scandal is asking a federal judge to reopen a criminal investigation of the exchange. Another trader, against whom criminal charges were dropped, is still waging a $22.5 million lawsuit against the NYSE, and is fighting charges from the
Securities and Exchange Commission
Even if their efforts are fruitless, the charges by the former floor traders are prolonging an episode that's been an embarrassment for the exchange since it surfaced two years ago. At that point, 10 floor brokers were arrested for alleged illegal trading -- primarily trading stocks for their own profit -- which is prohibited because they had access to nonpublic information. Nine of them pleaded guilty, and the other, John D'Alessio, had charges against him dropped.
Angelo Meneghello, who served one week in prison after pleading guilty to illegal trading on the NYSE floor, wrote U.S. District Court Judge Jed Rakoff last week and claimed the U.S. Attorney's office and
didn't go far enough in their NYSE investigation, which he contends left him and the other traders as scapegoats for systemic problems there.
A spokesman for the U.S. Attorney's office did not return calls for comment and a NYSE spokesman declined to comment on Meneghello's allegations in the letter.
In his letter to Rakoff, who presided over the case in
U.S. Court for the Southern District of New York
, the former trader says he knows there were "many other floor members" who engaged in the same practices he did, though they weren't caught. "It is for this reason and my firm belief that I think that the Office of the United States Attorney and the Department of Justice have engaged in prosecutorial misconduct," the letter says.
"I am fully cognizant that all crimes cannot be prosecuted and all criminals punished but in the case of the New York Stock Exchange, it appears as if some of us were sacrificial lambs for the misconduct of the entire NYSE," Meneghello writes.
In a separate action, D'Alessio -- another former floor trader -- has drawn the Big Board and several of its top officers, including Chairman
, into a civil lawsuit filed in April by the SEC.
The SEC filed the suit against D'Alessio for alleged securities violations related to the floor trading. D'Alessio, in turn, named the NYSE and its executives as third-party defendants, arguing they should be held accountable for securities violations alleged in the suit.
The NYSE is seeking to have itself removed as a third party from that case, spokesman Ray Pellecchia says. A hearing on that issue is scheduled for July 6.
D'Alessio, who owned
, was first arrested in 1998 and charged with taking part in illegal profit-sharing involving trades he made on the exchange floor. Last year, federal prosecutors dropped the charges against him.
D'Alessio, who lost his broker job and was forced to sell his seat on the exchange after he was indicted, sued the Big Board last December.
D'Alessio's lawsuit, in which he seeks $22.5 million in damages, alleges NYSE executives had not only condoned the floor trading, but also falsely told prosecutors they hadn't been aware of it.
The exchange is seeking to have the case dismissed. "We have asserted our immunity from such actions," Pellecchia says.
The traders' claims, however, are by no means certain to prompt legal sanctions against the NYSE at this point.
D'Alessio's case hinges to a large degree on whether the court rules that the exchange enjoys immunity similar to a government prosecutor because of its self-regulatory organization status, says D'Alessio's lawyer, Dominic Amorosa.
"It's not a frivolous matter," Amorosa says of the Big Board's immunity claim. "Frankly, we don't think it's valid, but it is being claimed. They shouldn't be treated any differently than anybody else."
The floor-trading scandal stems from a practice NYSE floor brokers once engaged in called "flipping," in which traders took advantage of the difference between bid and ask prices for stocks by making a series of rapid trades in the stocks, profiting in the process.
In his suit against the NYSE, D'Alessio claims hundreds of floor brokers carried out the illegal trading with the Big Board's blessing and encouragement.
The Big Board had been aware of the flipping and profit-taking by floor traders as early as 1991, D'Alessio alleges in his suit.
For its part, the NYSE agreed to a settlement with the SEC over the floor-trading issue last summer. Although the Big Board neither admitted nor denied guilt, the settlement noted that the exchange had failed to halt millions of dollars in illegal self-trading on its floor.
Amorosa said he hopes to question Grasso and other top NYSE executives about the floor trading in depositions for D'Alessio's suit against the Big Board and in the case D'Alessio is fighting as a defendant against the SEC.
"They are important witnesses to show that D'Alessio is not guilty of the civil charge," Amorosa said.
Meneghello, in his 10-page letter to Rakoff last week, details his cooperation with federal investigators and alleged illegal activity on the stock exchange floor. Whether the letter will prompt any follow-up action is unclear.
"It's likely to have no effect, even if it's true," says David Robbins, a well-known New York securities attorney and former government prosecutor. "For whatever reason, the government decided to stop
prosecution with the nine brokers."
"You also have to listen to the source of the protest" and as someone who pleaded guilty, Meneghello isn't likely to get much consideration from the government, Robbins says.