The arrests of eight independent floor brokers of the
New York Stock Exchange
and the owners of
, a small, relatively unknown broker-dealer, in an alleged front-running scam, may just be the tip of the iceberg, some brokers and floor traders warned.
"The other shoe has yet to drop," said one floor broker, requesting anonymity. "There will be more people arrested." He went on to suggest between 10 and 30 more people, most likely floor traders, could be named as the investigation continues. The broker was not certain whether all would be linked to Oakford, or whether they'd be accused of running separate, but similar, scams.
office in Manhattan, along with the NYSE, the
Federal Bureau of Investigation
Securities and Exchange Commission
, is said to be continuing the investigation. Officials at the federal prosecutor's office, the SEC and the NYSE did not return phone calls.
Yesterday, federal prosecutors charged the brokers and Oakford's owners with amassing illegal profits of $11 million from 1993 to 1996. According to the criminal complaint, William Killeen and Thomas Bock, owners of Oakford, approached brokers with a scheme to set up false proprietary accounts in Oakford's name. The eight brokers then allegedly bought and sold stock for the accounts based on information they gained due to their position at the exchange. The profits then were split among the brokers and Oakford.
There was very little sympathy for the accused among several other floor brokers and broker-dealers in light of the increased scrutiny the arrests will surely cause. "This looks bad for all of us," said one options trading specialist who also asked not to be named. "I hope they nail these guys."
Oakford, which has an office in Manhattan, is not a household name, either from the retail or regional brokerage aspect, he said. "If it had been a bigger name, it would have caused more of a buzz."
Rick Holway, director of trading for
(whose funds trade under the ticker IAI), said any brokers or floor traders using such illegal schemes are likely in a cold sweat. "People not behaving according to the rules have a reason to be worried," Holway said.
Apparently, the feds looked into Oakford's activity after its name surfaced in another federal probe. In September, Oakford was cited with making illegal soft-dollar payments to employees and partners of
First New York Securities
Gordon Haskett Capital
Soft-dollar refers to arrangements between broker-dealers and money managers in which the managers direct trading business to a certain broker-dealer in exchange for free services, most often investment research. Although soft-dollar agreements are legal, critics say there is potential for abuse when money managers look the other way as brokers charge them higher fees in soft-dollar transactions, or when the services purchased do not directly benefit the money managers' clients.
In the past, the SEC has found instances where money managers received rent payments, office furniture, free vacations and cash in exchange for trading business. Citing such abuses, the SEC began an investigation last year into soft-dollar firms, broker-dealers and money managers. So far, it has not announced any results of the industrywide probe.