Friday, July 18, 2008
Amir Efrati of the Wall Street Jrl reports on a ruling in the Second Circuit in a post titled, Second Circuit Stings SDNY in “Specialist” Case. The Second Circuit affirmed the acquittal of the trial court, an acquittal that occurred post trial following a jury verdict. Some thoughts on this decision:
What the Second Circuit decision held -
- The court refuses to find that "interpositioning" per se constitutes securities fraud. Interpositioning is when a specialist "'prevents the normal agency trade between matching public orders and instead interposes' himself 'between the matching orders in order to generate profits' for the principal account -- in other words, when the specialist acts as an arbitrage by taking a profit on the spread between the bid price and the ask price of customers' orders." (p. 3-4)
- The court finds that a violation of a "NYSE rule does not establish securities fraud in the civil context... let alone in a criminal prosecution." (p. 18)
- The court finds insufficient evidence of securities fraud here saying that "the government has attributed to [the accused] nothing that deceived the public or affected the price of any stock: no material misrepresentation, no omission, no breach of a duty to disclose, and no creation of a false appearance of fact by any means." (p. 19)
- Some DOJ individuals might be thinking about what kind of language is needed for a new statute so that the conduct they wish to criminalize will be covered.
- What needs to be said by high-ups at DOJ: It's a unanimous decision. How much money should be expended on being told that this isn't securities fraud. Some things just need to be left to control by regulators.
- Those with similar cases on appeal are probably celebrating, and those who plead guilty may be calling lawyers to see if anything can be done to change their plea.
- Don't hold your breath waiting for the US Attorneys Office to issue a press release on this decision as it never seems to happen when they are unsuccessful.
- There's plenty of criminal activity in society today - especially related to Internet fraud and identity theft. Maybe this is how DOJ should be spending its time and energy.
(esp) (w/ a hat tip to Bill Olis)