U.S. attorney drops cases against 5 NYSE specialists

Five former New York Stock Exchange specialists won’t be prosecuted for making illegal trades, leaving just one case outstanding from the 15 men originally charged in the case.

Michael Garcia, the U.S. attorney for New York, said in a statement that after assessing evidence in the five cases awaiting trial, “the government has concluded that the continued prosecutions in these cases are not in the interests of justice.”

Prosecutors originally charged 15 former NYSE specialists with fraud in April 2005 for violating federal securities laws by trading ahead of or between customers’ orders, generating millions in illegal profits from January 1999 to April 2003.

But now, the cases of Gerard Hayes, Robert Johnson, Scott Hunt, Frank Delaney and Thomas Murphy will not go to trial, Garcia said.

The government had mixed results in prosecuting the traders.

Charges have now been dropped against seven of them, two have pleaded guilty, two have been acquitted and three have been convicted. One trader, Freddy Deboer, fled and the charges against him are still pending.

Specialists have access to “buy” and “sell” orders streaming into the NYSE for the stocks they are assigned to, giving them an edge over others who do not see that information. Under exchange rules, they can only trade for their firms’ accounts to dampen volatility or add liquidity to the market.

Defense attorneys often blamed errant trades on the volume and volatility of the trading floor, arguing it was easy to make mistakes in a chaotic environment.