As many as 20 individual specialists on the floor of the New York Stock Exchange are under investigation by the Justice Department for allegedly using illegal trading practices to cheat customers, a source close to the case confirmed Monday.
The probe, reported Monday by The New York Times, is an extension of a U.S. Securities and Exchange Commission investigation into the trading practices of specialists from 1999 through 2003, the source said on condition of anonymity.
The NYSE began investigating the specialists — the auctioneers who manage buying and selling of particular stocks — in 2002, and the SEC got involved after determining the Big Board was not being aggressive enough.
In March 2004, five specialist firms agreed to a $241 million-plus settlement with regulators to resolve illegal trading allegations. The firms were Bear Stearns Cos. subsidiary Bear Wagner Specialists; Fleet Specialist Inc., now part of Bank of America Corp.; LaBranche & Co.; Van der Moolen Specialists and Goldman Sachs subsidiary Spear, Leeds & Kellogg. The settlement did not include any acknowledgment or denial of wrongdoing.
The current investigations focus on about 10 to 20 individuals, the source told The Associated Press. The individuals were already known to NYSE and SEC regulators.
The exchange and the U.S. Attorney’s office in Manhattan, which is handling the case, both declined comment.
Since the civil actions against the specialists were settled last year, the NYSE has taken steps to bolster its regulatory arm, divorcing it from the usual corporate chain of command. Chief Regulatory Officer Richard Ketchum now answers directly to the NYSE board of directors instead of Chief Executive Officer John Thain.
The regulatory division has been particularly aggressive in going after those who violate NYSE regulations, levying record fines over the past year.
The NYSE has also installed computer programs that flag questionable trades, like the ones allegedly used by individual specialists under investigation. The NYSE then investigates each trade for any wrongdoing.