Two Ex-Van der Moolen Specialists
Are Convicted of Securities Fraud
By CHAD BRAY, AARON LUCCHETTI and PAUL DAVIES
July 15, 2006; Page A3
Two former traders at Van der Moolen Specialists USA LLC were each convicted of securities fraud after a New York jury determined the two placed trades at the New York Stock Exchange that put their firm's interests ahead of those of clients.
The jury of eight women and four men deliberated for four days in U.S. District Court in Manhattan, ultimately handing down a split decision regarding Michael Hayward, 53 years old, and Michael Stern, 55. The jurors acquitted each man on a conspiracy count and two additional securities fraud counts.
Van der Moolen, a unit of Dutch trading firm Van der Moolen Holding NV, is one of the seven "specialist firms" tasked by the NYSE to help direct trading at the Big Board, a unit of NYSE Group Inc. Floor-based specialists match buyers and sellers, share information about factors affecting trading in the specific stocks they oversee and sometimes buy and sell on behalf of their employer.
Critics contend that ability to trade on behalf of their firms has at times put specialists in conflict with their customers, who include financial firms and mutual funds trading on behalf of investors. Prosecutors say the trading abuses occurred from 1999 to 2003, the same year Big Board CEO Dick Grasso was forced to resign amid a public outcry over his $187.5 million pay package.
Messrs. Hayward and Stern now face sentencing on Oct. 27. The two are the first of a group of former specialists to go to trial over charges of improper trading.
The two men were convicted of trading for their firms before they fulfilled customer orders and for placing themselves in between trades when they weren't needed. Prosecutors said the men each made $1 million in illegal profits for the firm's account as a result of their trading.
Specifically, Mr. Hayward was convicted of making improper trades for Van der Moolen's account when he was the specialist overseeing trading of energy company Apache Corp. between March 2002 and April 2003. The jury convicted Mr. Stern of making improper trades during his time as the specialist for Duke Energy Corp. between October 2002 and April 2003.
The ex-traders' lawyers argued the majority of trades they made were proper and the trades in question were mistakes that occurred during a period of surging business and the industry's switch to quoting stock prices in decimals rather than fractions of a dollar.
The jury acquitted the former traders of engaging in a conspiracy with other former Van der Moolen specialists. The two were also acquitted of charges of improper trading while they served as specialists overseeing several other stocks.
After the verdict was read, the jurors left the courtroom, and the two former traders hugged their lawyers. Mr. Hayward also hugged his young daughter and told her in a consoling tone, "It's OK."
"The jury was very focused on the hard-core data," said juror Tatjana Odrljin, 44. "We didn't take into account the witnesses who had nonprosecution agreements with the government because we didn't know what to believe there. We felt all the traders did improper trading but rejected the conspiracy theory because we felt that there was not serious intent but more the way things are always done at the stock exchange."
David Meister, a Clifford Chance attorney representing Mr. Stern, said: "We're obviously disappointed with the jury's verdict on the single count but pleased the jury vindicated Mr. Stern on the remaining allegations including that he was involved in a larger conspiracy." Mr. Meister said he planned an appeal. Mr. Hayward's lawyer declined to comment.
More former specialists face trials. Friday's verdict could persuade some to plead guilty rather than go to trial. But some legal experts said the not-guilty verdicts on certain counts could embolden other defendants to fight the charges. |
