SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION CHARGES FORMER NYSE FLOOR BROKERS WITH ILLEGAL TRADING SCHEME
Litigation Release No. 16497 \ March 31, 2000
SECURITIES AND EXCHANGE COMMISSION v. THE OAKFORD CORPORATION, EDWARD J. MUEGER, INC., MFS SECURITIES CORP., OAKWOOD SECURITIES CORP., D'ALESSIO SECURITIES, INC., WILLIAM S. KILLEEN, THOMAS W. BOCK, THOMAS J. CAVALLINO, EDWARD J. MUEGER, MARK R. SAVARESE, JOHN J. SAVARESE and JOHN R. D'ALESSIO, United States District Court for the Southern District of New York, 00 Civ. 2426 (S.D.N.Y.)
NEW YORK -- The Securities and Exchange Commission announced that on March 30, 2000, it filed a civil enforcement action charging several former New York Stock Exchange, Inc. ("NYSE") floor brokers and other defendants with engaging in an illegal trading scheme on the NYSE floor between 1993 and early 1998. The Complaint alleges that the floor brokers abused their position on the NYSE floor by trading for their own accounts and accounts over which they exercised investment discretion, violated their duties to public customers, and received millions of dollars in unlawful trading profits. The charges are similar to ones brought by the Commission against the same defendants and others in an earlier action, SEC v. Oakford, 98 Civ. 1366 (JSR).
Named as defendants in the Commission's Complaint filed in federal court in Manhattan are:
Also named as defendants are registered broker-dealers affiliated with the individual floor broker defendants, Edward J. Mueger, Inc. ("Mueger, Inc."); MFS Securities Corp. ("MFS"); Oakwood Securities Corp.("Oakwood"); and D'Alessio Securities, Inc. ("D'Alessio Securities").
The Complaint alleges that:
From 1993 through 1998, the defendants engaged in a scheme in which the floor broker improperly took advantage of information they obtained on the NYSE floor to make trades for designated accounts at Oakford. Cavallino; Mueger; J. Savarese; M. Savarese; the Savareses' alter ego, MFS; and D'Alessio exercised significant discretion over their Oakford accounts, which were in fact the floor brokers' own accounts in that the floor brokers received 70% to 90% of the trading profits pursuant to oral agreements with Oakford and its principals, Bock and Killeen. By trading in their own accounts and accounts over which they exercised investment discretion, the floor brokers violated Section 11(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 11a-1 thereunder, and, with the exception of D'Alessio and D'Alessio Securities, NYSE Rules 90(a), 95(a) and 111(a).
Cavallino and his firm, Oakwood; J. Savarese and MFS; D'Alessio; and D'Alessio Securities unlawfully executed trades in their Oakford accounts while holding unexecuted customer orders for the same securities, and, along with M. Savarese, filled customer orders with securities bought from or sold to their Oakford accounts. As such, they "frontran" and "traded ahead" of customer orders in violation of Section 10(b) of the Exchange Act, Rule 10b-5, Section 17(a) of the Securities Act of 1933 ("Securities Act") and, with the exception of D'Alessio and D'Alessio Securities, violated Rules 91and 92.
Aided and abetted by other defendants, Mueger, Inc., MFS, Oakwood, D'Alessio Securities, and Oakford made and kept false books and records in violation of Section 17(a) of the Exchange Act, and Rules 17a-3 or 17a-5 thereunder. Bock and Killeen aided and abetted several of the violations alleged against other defendants.
The Commission initially charged these defendants and others with this same illegal trading scheme in SEC v. Oakford, 98 Civ. 1366 (JSR), filed on February 25, 1998, amended on May 18, 1998). In the summer of 1998, the Court dismissed that 1998 complaint as to the defendants without prejudice pending resolution of criminal charges brought against those defendants and others by the United States Attorney's Office for the Southern District of New York ("USAO"). Since then, several of the defendants named in the Complaint have pleaded guilty to criminal violations in connection with their unlawful trading, and have been sentenced. Certain other defendants named in the Commission's 1998 complaint have settled the Commission's charges and are not named in the current Complaint.
In the Complaint, the Commission seeks judgment permanently enjoining the defendants from violating the applicable securities laws and rules, requiring the defendants to disgorge their ill-gotten gains with prejudgment interest, ordering them to pay civil penalties, and ordering them to account for their ill-gotten gains. The litigation remains pending.
The Commission's action is a result of an investigation with the USAO, the NYSE, the Internal Revenue Service Criminal Investigation Division, and the Federal Bureau of Investigation. For more information, see LR-15653, February 25, 1998, LR-15743, May 18, 1998.