Legal News

More Specialist Prosecutions Sour, Southern District of NY Now 0-15

By Dan Slater

As the summer of vindication winds down (well, at least the summer part), three more so-called specialist traders might get to enjoy the final days. Last month, the Second Circuit upheld the acquittal of David Finnerty, a former specialist trader at Fleet Specialist, who’d been accused of making improper trades for his firm’s account at the NYSE, and reversed the convictions of two more specialists who used to work at Van der Moolen Specialists.

Now, DJ Newswire’s Chad Bray reports, U.S. District Judge Sidney Stein in Manhattan has vacated the guilty pleas (to securities fraud) of two other Van der Moolen specialist traders — Patrick McGagh and Joseph Bongiorno — and dropped the criminal case against a former LaBranche & Co. trader, Freddy DeBoer. This final blow to SDNY prosecutors means their office goes 0-15 on specialist prosecutions. A spokeswoman for the U.S. attorney’s office in Manhattan, which brought the cases, declined to comment Monday.

The NYSE’s “specialist firms” are elite trading operations in charge of specific stocks on the floor of the exchange, a unit of NYSE Euronext. Specialists match buyers and sellers at the NYSE and provide liquidity by buying or selling shares when there is an imbalance on the floor.

Marjorie J. Peerce, the lawyer for both McGagh and DeBoer, said of McGagh: “He served about a year in jail for something which has now been determined is not a crime. It’s been a long and difficult ordeal. He looks forward to continuing his life as a husband, father, son, brother and productive businessman.”

SEC Censure: All seven specialist firms that worked on the floor of the NYSE were fined by regulators as part of probes of improper trading by specialists dating to the late 1990s. The exchange itself was censured by the Securities and Exchange Commission.

In December, Lehman Brothers Holdings Inc. said it would acquire certain assets from Van der Moolen Holding NV, including its specialist assignments for companies listed on the NYSE.

Last year, Van der Moolen Holding said it would shut its U.S. specialist activities to focus on brokerage and trading activities at the CBOE Stock Exchange.

Full post as published by Law Blog - WSJ.com on August 26, 2008 (boomark / email).