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Spear, Leeds & Kellogg Fined $1 Million

Brokerage: Goldman Sachs' unit, probed in fraud case, faces the largest penalty ever levied by the Amex.

November 27, 2001|From Bloomberg News and Times Staff Reports

The American Stock Exchange on Monday fined Goldman Sachs Group's Spear, Leeds & Kellogg unit $1 million for failing to supervise an executive who allegedly conducted fraudulent trades for another brokerage that cleared its trades through Spear.

The fine, the biggest penalty ever against an Amex firm, comes more than two years after the executive, Pasquale Schettino, was fined $100,000 and barred from the exchange for the trading, which occurred in 1994 and 1995.

"These things have to be investigated thoroughly," Amex spokesman Robert Rendine said about the duration of the investigation.

Spear Leeds violated exchange rules by failing to adequately supervise Schettino's activities. The firm also didn't obtain information on accounts of Bullseye Securities, a now-defunct brokerage for which Schettino managed and traded stocks and options without exchange approval.

Schettino, who was in charge of Spear's professional clearing operations on the floor of the Amex, traded as many as 1.3 million shares a month in Bullseye's account in 1994 and 1995, the Amex alleged. He traded about 40 stocks and many options contracts.

Spear Leeds is a "specialist" firm, meaning its role is to keep order in stocks and match buyers and sellers. As such, specialist traders have access to critical information about stocks' price trends and incoming orders.

Spear Leeds failed to act on or respond to signs of Schettino's possible misconduct, the exchange said. Spear Leeds declined to restrict Schettino's access to the exchange floor while the Amex investigated his conduct and failed to conduct a formal internal investigation, the exchange said.

The Amex also found that Spear Leeds failed to develop, maintain and enforce written supervisory procedures for its professional customer and specialist operations on the floor of the exchange.

Goldman acquired Spear Leeds in October 2000 for about $5.4 billion to bolster its trading operations. The firm consented to the findings of the exchange without admitting or denying violations, the Amex said.

The $1-million fine far surpassed the previous record $225,000 levy the Amex imposed on Lehman Bros. in September 1998, said Lynn Teresky, an Amex spokeswoman.

The New York Stock Exchange has levied six fines of $1 million or more on member firms, said Ray Pellechia, an NYSE spokesman. The largest was $2.5 million against the former Drexel Burnham Lambert in 1992.

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