US traders on fraud charges

The clean-up of Wall Street continued yesterday when criminal and civil fraud charges were filed against 20 former "specialists" who trade for clients on the floor of the New York Stock Exchange.
The individuals, who oversee the buying and selling of shares at the exchange, were accused of trading on their own accounts for a quick profit when they should have been executing orders from clients. The charges could further undermine confidence in the traditional "open-outcry" form of trading and move the exchange further towards electronic trading.
The charges stem from a two-year investigation into allegedly illegal behaviour on the floor of the world's biggest stock market between 1999 and 2003.
The United States attorney's office in Manhattan has filed criminal charges against 15 of the individuals.
The securities and exchange commission (SEC), the financial watchdog, filed civil charges against the same 15 plus another five specialists.
The commission also settled charges with the exchange for failing to properly police the traders. The NYSE will set aside $20m (£10.6m) to beef up regulation, including video and audio surveillance of the trading floor.
David Kelley, the US Attorney for the southern district of New York, said the individual profits made from the illegal activity were as high as $4.4m. Combined, they reaped $13.5m and cost investors more than $19m, the indictment said.
The specialists put "their own interests and the interests of their firms before the interests of unwitting investors", Mr Kelley said. "Over time, these small thefts accumulate into large profits."
The people named in the criminal and civil suits include current and former employees of LaBranche, Bear Wagner Specialists, Bane of America
Specialist, Van der Moolen and Spear, Leeds & Kellogg, part of Goldman Sachs. Seven specialist firms agreed last year to pay $247m to settle allegations that they had profited on trades at the expense of their customers.
If convicted of criminal charges, the individuals could face up to 20 years in prison and fines of up to $5m. One of the men, Freddy DeBoer of LaBranche, is at large in the Netherlands, Mr Kelley said.
The specialist investigation delved into the latest example in a long line of allegedly corrupt behaviour that appeared to have taken hold of Wall Street during the boom years of the late 1990s and began coming to light around the time of the fall of Enron.
Stephen Cutler, director of the SEC enforcement division, said: "These individuals violated the public trust by abusing the privileged position they had as specialists on the New York Stock Exchange." He said there was "zero tolerance" for those who broke the law.