Six Defendants Plead Guilty in NYSE Floor Broker Case

A judge still may seek a separate sentencing hearing.
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Anyone expecting a

Perry Mason

-like showdown Thursday at the Manhattan federal court plea hearing of six defendants nabbed in an alleged illegal trading scheme at the

New York Stock Exchange

was sorely disappointed.

The defendants -- four floor traders and two owners of small broker dealer -- uneventfully pleaded guilty Thursday afternoon. The pleas came

one day after a federal judge raised questions about the strength of the government's case against the brokers. The judge surprised onlookers when he said Wednesday he was considering seeking a separate sentencing hearing to determine what, if any, profits the defendants made from their actions. Defense lawyers then asked for a one-day delay in the plea hearing to confer further with their clients.

On Thursday, U.S. District Judge Jed Rakoff continued to hold out the possibility of a sentencing hearing and set a Sept. 1 deadline for both prosecutors and defense lawyers to submit arguments against it.

In a clear reference to the possibility of a sentencing hearing, Rakoff reminded the brokers the court isn't bound by the plea agreements and their "sentence could be affected by any gain or loss, if a gain or loss could be ascertained." Barring a separate hearing, Rakoff set Sept. 21 as the sentencing date for the six defendants.

Defense lawyers said they had reached an additional agreement with the government. If the court determines in a sentencing hearing that there was a loss or gain from the alleged illegal trading, then the defendants would have the chance to argue that the gains overstate the seriousness of the offenses.

Wednesday's flap over the sentencing hearing evidently made Thursday's continuance much anticipated. The courtroom was filled with several reporters and two sketch artists and, outside the courthouse, a

CNBC

camera crew waited for the defendants.

If the sentencing hearing happens, the process could cut both ways in the case. On one hand, it could result in stiffer penalties against the defendants, especially if profits from the suspect trades are determined. On the other hand, it could weaken the government's case since prosecutors conceded they couldn't determine which specific trades were illegal and which trades resulted in a profit or loss.

The case stems from the February 1998 arrest of eight Big Board floor brokers and the owners of

Oakford

, a small broker-dealer firm. The government alleged that Oakford set up accounts for the brokers who then bought and sold stock ahead of large incoming buy or sell orders. Profits from the trading were supposedly split among the brokers and Oakford, the government said. Three of the eight brokers pleaded guilty last year, and one additional broker had the charges against him deferred for six months Wednesday in court.

Wednesday's delay added some uncertainty to the situation, but after William Killeen, president of Oakford, and Thomas Bock, the firm's chief financial officer, pleaded guilty without incident Thursday, many of the onlookers began to mill out.

Killeen and Bock admitted separately they had set up accounts for the brokers and entered into a profit-sharing agreement with them. They also said they were aware the brokers were making trades that were not ordered by customers, which is illegal. Both Killeen and Bock face a sentence of 15 to 21 months in prison, according to their plea agreements. Also, an attorney for Oakford pleaded guilty to "any and all" charges against the firm, which could face a fine of up to $16,000. Oakford will be dissolved at the completion of sentencing.

Next, the four brokers -- Thomas Cavallino, Edward Mueger and brothers Mark and John Savarese -- were allowed to plead together. When asked their present occupations, three of the four brokers -- Cavallino and the Savarese brothers -- said they were daytraders.

All four pleaded guilty to executing trades that weren't ordered by customers. Cavallino said he had bought and sold shares of

IBM

(IBM) - Get Report

without customer orders and received up to 70% of the profits from the trades. The other brokers didn't give details of their trading activity. Under their plea agreements, each broker could receive up to six months in prison.