5 NYSE Firms to Pay to Settle SEC Charges
By MICHAEL J. MARTINEZ, AP Business Writer
NEW YORK - Five New York Stock Exchange (news - web sites) specialist firms will pay $241.8 million to settle charges that they profited from illegal trading practices on the floor of the exchange, the Securities and Exchange Commission (news - web sites) and NYSE said Tuesday.
The five firms — Bear Stearns subsidiary Bear Wagner Specialists, FleetBoston subsidiary Fleet Specialist Inc., LaBranche & Co., Van der Moolen Specialists and Goldman Sachs subsidiary Spear, Leeds & Kellogg — violated securities laws by executing their own orders for the shares they managed ahead of customers' orders, thus depriving clients of fair trades and possibly better prices, the regulators said.
More than $150 million in profits were made between 1999 and 2003, a joint investigation found.
Under the agreement, first reached in mid-February, $154 million will go to customers damaged by the firms' actions. The rest of the money represents fines that will go to the SEC and NYSE, according to the commission.
The firms, without admitting or denying the charges, also will take steps to improve their regulatory compliance procedures and oversight, the SEC said.
A spokesman for the NYSE said the exchange had no further comment beyond a joint statement issued with the SEC.
Specialists on the floor of the exchange bring buyers and sellers together in auction-style trading, attempting to match them at a mutually acceptable price. Specialists also buy and sell the shares that they manage, and use their firm's stock to help meet supply or demand where lacking. There are seven specialist firms working at the NYSE.
Since the NYSE announced its investigation in April, the exchange has implemented computer systems that flag questionable trades, notifying the NYSE's internal regulators.
In addition to the fines, all five specialist firms will be required to review those flagged trades on a daily basis. The firms must also create an internal committee to monitor compliance, keep records on individual specialists and their trading activities, and retain an independent consultant to review each company's compliance efforts, according to the SEC settlement.
Van der Moolen confirmed the settlement and said it had set aside $55 million toward its share. The firm is slated to pay $57.7 million.
Goldman Sachs spokesman Ed Canaday said the firm was pleased to put the matter behind it, and that the company will continue to expand its compliance training and oversight. Spear, Leeds & Kellogg will pay $43.5 million.
A source close to the Goldman subsidiary noted that the traders responsible for illegal trading in the stocks cited by the SEC are no longer with the company, and that violations dropped off considerably after Goldman Sachs bought the specialist firm in late 2000.
Fleet Specialist, which will pay $59.1 million as part of the settlement, also removed its specialists from the floor of the NYSE, and is "evaluating other steps that may be taken against them," spokesman Charles Salmans said. One of the five specialists involved in the scandal has already left the company, and Salmans said Fleet was not ruling out dismissing the rest.
"It's been a long, protracted process," Salmans said. "We're cooperating with the SEC and the NYSE and we're happy to have it behind us."
Two sources close to the specialist firms said that while there were certainly inappropriate trades, the NYSE's shift to more electronic trading, as well as its move from pricing stocks in eighths to a decimal system, may have caused confusion among specialists, inadvertently resulting questionable trades as well.
Calls to LaBranche and Bear Stearns seeking comment were not immediately returned Tuesday.
Shares of LaBranche fell 5 cents to close at $10.94 on the NYSE, where Goldman shares rose 4 cents to close at $104.26. Van der Moolen stock was up 38 cents to close at $9.29, FleetBoston shares gained 36 cents to close at $45.33 and Bear Stearns rose 44 cents to close at $86.89.
On the Net:
http://www.nyse.com
http://www.sec.gov
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