Government Handed Quick Defeat in Criminal Securities Fraud Case

Reaching a “quick and unanimous” decision and citing the weakness of the government’s case, a jury in the Southern District of New York delivered the government a decisive defeat on August 2, 2006, when they acquitted Robert A. Scavone, a former trader with Van Der Moolen Specialists USA LLC, of one count of securities fraud after only 45 minutes of deliberation. Mr. Scavone is one of fifteen NYSE specialists from five houses indicted for improper trading practices. Two other specialists were previously convicted on similar charges.

In a parallel case, the SEC instituted a civil enforcement action against Scavone, as well as 19 other former NYSE specialists, on April 12, 2005. The Commission’s complaint claims, in part, that the specialists fraudulently traded from their proprietary accounts by “interpositioning” and “trading ahead”, instead of pairing off available customer buy and sell orders directly with those of other customers. This allowed the specialists to make “guaranteed, riskless profits for their firm’s proprietary accounts,” to the detriment of customer orders. Mr. Scavone has not resolved this case.