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Judge Warns Wall Street Cheats

By LARRY NEUMEISTER Associated Press Writer
© 2006 The Associated Press

NEW YORK — A judge said Wednesday he wants Wall Street to learn that cheating the public because everybody else is doing it or because there's lax enforcement of financial crimes is no defense for white collar crime.

Judge Sidney H. Stein repeatedly stated the message before he announced plans to send a high powered specialist who supervised traders on the floor of the New York Stock Exchange to prison for two years and three months for cheating the public on thousands of trades.

"People rely on the U.S. securities markets as being fair and clean and he undercut that," Stein said.

The judge said he plans to impose the prison sentence and a $250,000 fine on Joseph Bongiorno, 52, in October after lawyers in the case submit additional arguments on a point of law.

"I'm truly sorry for my actions," Bongiorno told the judge. "I wish I didn't do what I did."

Bongiorno and Patrick McGagh Jr., 40, pleaded guilty in May, admitting they put their companies' orders ahead of orders from the public. A sentencing hearing was also held for McGagh on Wednesday, but Stein didn't indicate what sentence he was considering for him.

The proposed sentence for Bongiorno was shorter than prosecutors were seeking. The judge said he recognized the circumstances on Wall Street had changed significantly since the crimes occurred between 1999 and mid-2003.

Stein bristled at repeated efforts by Bongiorno's defense lawyer, Barry Berke, to argue that Bongiorno worked in an environment in which enforcement of NYSE trading rules was so lax that Bongiorno's behavior was not out of the ordinary.

At one point, Berke said even former NYSE chief Richard A. Grasso had compared the type of crimes Bongiorno committed to jaywalking.

"Your client compromised the integrity of the securities markets," the judge said. "`Clerks made me do it. Mr. Grasso made me do it.' I don't accept any of that."

Stein added: "It was money that should have gone to public customers. Do you know where it went? It went into his pockets."

Stein said Bongiorno occupied a coveted spot on the floor of the exchange as a floor governor with supervisory powers over less senior floor traders.

The defendants were among 15 people charged after a probe of specialists working on the floor of the stock exchange revealed they had allegedly used their inside positions to earn an estimated $20 million in illicit gains for themselves and their firms.

Federal authorities said the specialists at five firms put their companies' orders ahead of customers' orders, causing those customers to get inferior prices.

Assistant U.S. Attorney Lauren Goldberg said it was not fair for defendants to argue that the environment on the NYSE floor permitted the crimes. She said in 4,000 instances in which illegal trades were pointed out by regulators, specialists insisted it was an error and never tried to defend the practice as acceptable.

Specialists operate "open-outcry" auctions _ a method of commodities trading involving often loud verbal bids and offers _ on the floor of the NYSE. They match buy and sell orders for customers of the stocks they oversee. They also use their firms' money to buy shares when nobody else wants to buy and to sell shares from their own inventory when nobody else wants to sell.

Since the criminal investigation and civil charges brought against individuals and firms by the Securities and Exchange Commission, the exchange has said it has made changes in its surveillance and enforcement plans on its floor.

NYSE specialist firms have paid a total of $247 million to settle SEC charges.

The NYSE has said specialist firms gained $155 million in illegal profits over five years, a time when the exchange handled $50 trillion in trades.

http://www.chron.com/disp/story.mpl/ap/fn/4202021.html