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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: shades who wrote (63951)	6/17/2006 1:44:38 AM
From: shades	Respond to of 110194

Lawyers: No Motive For Improper Specialist Trades (no motive? philster says GREED was thier motive) By Chad Bray Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Two former Van der Moolen Specialists USA LLC floor specialists had no motive to make allegedly improper trades for their firm's own accounts ahead of public orders in violation of New York Stock Exchange's rules, their lawyers said at their fraud trial on Friday. In their opening statements, lawyers for Michael Hayward and Michael Stern said the trades at issue had more to do with mistakes in a chaotic environment at the Big Board that became only more crazed as the NYSE's trading volume skyrocketed in the late 1990s and the exchange transferred from trading in eighths of a dollar to decimals. David Meister, one of Stern's lawyers, called it a "perfect storm" with specialists in the middle. The defense attorneys also said the allegedly improper trades only accounted for about 1% of the thousands of trades the men engaged in daily. "The government's indictment demands perfection," Meister said. "On the floor of the New York Stock Exchange, it was impossible to be perfect." Hayward, a one-time specialist for Time Warner Inc. (TWX) and SPX Corp. (SPW), and Stern, a former specialist for Eli Lilly & Co. (LLY), Pfizer Inc. (PFE) and Duke Energy Corp. (DUK), each have been charged with conspiracy to commit securities fraud and three counts of securities fraud. They face a maximum of 20 years in prison on the securities-fraud charges. Prosecutors say the men, who both served on Van der Moolen's management committee, cut ahead of public orders as specialists and made thousands of trades for Van der Moolen's accounts in violation of the Big Board's rules between 1999 and 2003. The government also has argued that the men improperly positioned themselves between buyers and sellers in order to make illicit profits for the firm, instead of matching those buy and sell orders. Specialists match buyers and sellers at the NYSE, a unit of the publicly traded NYSE Group Inc. (NYX), and provide liquidity by buying or selling shares when there is an imbalance on the floor. Hayward and Stern are the first of first of a group of former floor specialists accused of engaging in fraudulent and improper trading at the NYSE to go to trial. Two former Van der Moolen specialists have already pleaded guilty in the matter. Jonathan Bach, one of Hayward's lawyers, said the vast majority of trades made by his client were "perfect in every respect" and prosecutors are focusing the 1% were a mistake was made "for perfectly ordinary reasons that have nothing to do with fraud." "It is a very big game of telephone," Bach said, referring to the sometimes chaotic nature of the trading floor. "Miscommunication can occur at any point of the process." Bach noted that Hayward's error rate, while not great, did increase when he served as the specialist for Time Warner. During that period, then-America Online Inc. used its shares to acquire Time Warner in one of the largest mergers in history. At the same time, Time Warner's stock was being used in an NYSE pilot program to test selling shares in one-cent increments. "It was a whirlwind," Bach said. Meister, Stern's lawyer, said the government was focusing on a small percentage of Stern's trades in an environment where specialists have to make split-second decisions on whether to execute a trade on Van der Moolen's behalf, while juggling customer orders that are submitted electronically and matching buyers and sellers on the exchange floor. He noted a specialist can often trade four or five times in a 10-second period. "It's like focusing on Michael Jordan's missed shots to prove he's a bad basketball player," Meister said. The defense lawyers also disputed the government's claims that Stern and Hayward were driven by greed, saying neither man had a financial motive to engage in the alleged scheme to make improper trades for Van der Moolen's accounts. Meister said Stern earned between $2.5 million and $4.5 million a year at Van der Moolen during the alleged conspiracy, or about $10,000 to $15,000 a day in legitimate compensation including a salary, a bonus and 1% to 2% of the firm's profits. As a result, the alleged improper trades would only have accounted for $20 to $30 a day in increased earnings for Stern, Meister said. "It makes no sense," Meister said. On Friday afternoon, prosecutors called their first witness in the case, Paul DesRoches, managing director of market operations for the NYSE. DesRoches guided the jury through several videos from the prosecution and the defense that showed specialists at work at their panels and trading posts on the floor of the Big Board. Prosecutors also introduced into evidence copies of the NYSE rules in place at the time of the allegedly improper trades. -By Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com (END) Dow Jones Newswires June 16, 2006 16:55 ET (20:55 GMT)