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Ten NYSE Dealers Charged by SEC

February 26, 1998

NEW YORK (AP) _ The two owners of a brokerage firm and eight New York Stock Exchange floor dealers were charged Wednesday with making more than $11 million by illegally taking advantage of key market information before it became widely public.

William Killeen and Thomas Bock, the owners of the Oakford Corp. brokerage, and the eight dealers were charged with violating a law designed to prevent a form of insider trading by dealers who have access to front-line information by being on the floor of the exchange.

Besides criminal charges, the SEC also filed a civil case against the defendants and their companies seeking to recover any illicit profits, payment of undisclosed fines and a lifetime ban from the securities industry. The NYSE also suspended the defendants.

The case marks the first time federal prosecutors and the Securities and Exchange Commission have pressed charges against anyone for making personal trades on the floor of the exchange and is part of a more coordinated and intensified crackdown on fraud in the nation’s securities markets.

A clerk who works on the exchange floor also was charged in a different complaint with conspiracy to engage in illegal transactions on the floor of the exchange. Killeen and Bock also face tax fraud charges stemming from another investigation.

Federal officials said the defendants in the Oakford case were driven by greed and engaged in an elaborate conspiracy for over five years. They used disguised accounts for the illegal transactions and doctored trading records to hide their tracks, the government alleged.

``Out of personal greed, the defendants charged today flagrantly and repeatedly disregarded the interest of their customer and fellow members,″ said U.S. Attorney Mary Jo White. ``It is conduct that cannot be tolerated and must be met with the strongest law enforcement and regulatory response available.″

Floor dealers are paid a commission to conduct trades for brokerage clients and their customers. They are restricted by law and NYSE rules from making trades for themselves or for any account in which they have a financial interest.

The government alleged Killeen and Bock opened accounts that they shared with the dealers and falsely identified them as Oakford trading accounts. The dealers conducted illegal trades for the accounts from the floor of the exchange, sharing the profits or loses with Killeen and Bock.

The dealers would initiate trades for the accounts and falsify the receipts to give the appearance they were executing orders for Oakford. Illegal trades initiated by the dealers were coordinated to match blank order tickets from Oakford that already were stamped with a time, authorities said.

``The conduct here represents a direct assault on the fairness and integrity of one of the nation’s foremost securities markets,″ said Carmen Lawrence, chief enforcement officer for the SEC’s Northeast region.

The trades were made in stocks of 10 companies and included such household names as IBM Corp., AT&T Corp., General Motors Corp.

Floor dealers are restricted from making trades for themselves because they could use their heightened awareness of market movements and benefit from trades that are made split seconds before the information is processed or made widely public.

For example, floor dealers could see big market-moving trades in the works and jump in just before the order is executed and take advantage of a price climb. They also could exploit changes in certain stock prices before they are widely posted.

Any floor dealer who wants to make personal trades must register with the exchange and is subject to strict scrutiny. Of the more that 1,300 NYSE floor dealers, only seven have registered to do business for themselves from the floor, the exchange said.

NYSE Chairman Richard Grasso said acknowledged detection of the alleged illegal activities ``has obviously come quickly,″ but he said that was made difficult by the immense falsification of audit records that are designed to help market watchdogs uncover crime.

Nevertheless, Grasso said that the NYSE has heightened surveillance activity. ``Our actions today send a strong message to everyone in the securities industry: we have zero tolerance,″ Grasso said. ``Break the law and you will be caught and punished.″

Authorities said the scheme was uncovered in part by other investigations into fraud in the securities industry. White said the investigation into illegal floor trading is continuing. Authorities believe such improprieties isn’t isolated but ``people should not conclude it is pervasive,″ she said.

All but two of the defendants were in custody Wednesday. Bock and Killeen, whose charges also involve tax fraud, could face 95 years in prison and millions of dollars in fines. The floor dealers could face similar fines and 25 years in prison.

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