Judge Sidney H. Stein of U.S. District Court for the Southern District of New York has dropped the securities fraud violation charges against three ex-traders. The nolle prosequi orders conclude the Justice Department’s probe, began in 2005, against 15 New York Stock Exchange specialists for securities fraud violations. Stein set aside the guilty pleas of Van der Moolen USA LLC specialists Patrick McGagh and Joseph Bongiorno, while prosecutors dropped criminal charges against former LaBranche & Co. LLC specialist Freddy DeBoer.
The government had indicted the specialists on claims that they engaged in certain stock-selling practices to defraud investors. In November 2006, however, U.S. Attorney Michael Garcia announced that five the specialists would not be prosecuted. Also in 2006, charges against two of the defendants were dropped while two others were acquitted.
Three specialists were convicted in district court. However, this year, the U.S. Court of Appeals for the Second Circuit reversed all three convictions. The latest decisions mean that the government was not able to sustain even one criminal action it had filed against the 15 defendants.
In the 2005 indictment, McGagh and Bongiorno were charged with federal securities violations. They were accused of using their positions to defraud investors, including 15,620 instances of interpositioning to generate illegal profits over $1.38 million, causing over 8,630 instances of trading ahead, and causing over $1.36 million in customer harm. McGagh was also accused of causing more than 21,290 instances of interpositioning that led to illegal profits of over $3.43 million, over 4,200 instances of trading ahead, and over $1.24 million in customer harm.
Specialists match sellers and buyers at the NYSE. When there is an imbalance on the floor, they sell and buy shares.
More Guilty Pleas Vacated In Probe of NYSE Trading, Wall Street Journal