Opinion ID: 790064
Heading Depth: 2
Heading Rank: 1

Heading: The Oakford Trades

Text: 4 The facts presented by this petition bring before us another chapter in the criminal and regulatory prosecution of those involved in the so-called Oakford scandal in the 1990s. The Oakford Corporation (Oakford) was a Manhattan-based securities trading company that conspired with several floor traders at the NYSE by giving the brokers a beneficial interest in the Oakford account—that is, a share of net profits from trades made in the account—in return for which the brokers used their investment discretion for Oakford's benefit. See United States v. Oakford Corp., 79 F.Supp.2d 357, 358-59 (S.D.N.Y.1999). Several Oakford principals and brokers were found criminally liable for their role in the scheme. See id. In this case, we are concerned with an actor whose role in the scheme was of a relatively minor nature. 5 We recite briefly the relevant facts. McCarthy is an independent broker trading on the floor of the Stock Exchange. In June 1995, 16 months after he began operating as an independent broker, and at that time age 31, he began executing trades for Oakford. Petitioner consistently billed Oakford for his brokerage services in an amount equal to 70 percent of the net profits of these trades, and Oakford consistently paid him close to that amount. When Oakford began paying McCarthy less than 70 percent—as a result of previously undisclosed clearing fees that Oakford deducted from McCarthy's fee prior to payment—McCarthy called one of Oakford's principals, Bill Killeen, and asked why the payment was less than what McCarthy thought he was entitled to. Following this, at Killeen's instruction, McCarthy billed Oakford for an amount equal to the total net profit on his trades. The actual amount Oakford paid him continued to be about 70 percent of the net profit. Oakford was not billed for trades that resulted in a net loss. 6 Some of the particulars of McCarthy's trading transgressions are as follows. Of the 21 days of trading records contained in the record on appeal, there is evidence that on four occasions petitioner executed trades without objection from Oakford even though the trades were not authorized by Oakford. This conduct indicates that McCarthy exercised his own discretion when trading for the Oakford account. On numerous occasions McCarthy benefitted Oakford by crossing trades—that is, he executed another customer's order by buying or selling securities from the Oakford account for Oakford's benefit—and trading ahead—that is, McCarthy held orders for Oakford and another customer for the same stock and fulfilled the Oakford order first to allow Oakford to reap the benefit of the increase in price caused by the subsequent execution of the other customer's order. 7 Petitioner also failed to keep adequate records, especially by not time-stamping some order tickets and, on seven occasions, time-stamping the order tickets after the trades had been placed, suggesting that he may have executed the trades before receiving the orders to make such trades. McCarthy's records also lacked certain information on the Oakford account required by federal securities law and NYSE rules, such as the number of shares traded, the price of those shares, and whether the transfers were purchases or sales. Although petitioner employed a clerk to prepare bills for his other clients, he prepared the Oakford bills himself. He stopped handling trades for Oakford in March 1996, after performing that service for nine months.