Nine floor specialists on the American Stock Exchange were indicted by New York State Attorney General Louis J. Lefkowitz yesterday and charged with more than 1,000 misdemeanor counts of violating state security laws.
Specific charges included placing phony transactions on the options tape of the Amex, with the purpose of falsely encouraging and prompting the sale of securities.
The indictments, resulting from a New York grand jury investigation, charge the defendants with engaging in fraud, deception, concealment, and other related action in connection with options on such stocks as Mesa Petroleum, Goodyear Tire and Rubber, Dr. Pepper, Digital Equipment, Phillips Petroleum, and Phelps Dodge.
The alleged actions occurred shortly after the Amex began trading in options on stocks listed on the rival New York Stock Exchange about two years ago, according to an Amex spokesman.
The spokesman also said that fake trades were recorded on the options ticker for stocks that had been lightly traded in an attempt to show that option prices on those stocks matched the stock price as it was traded later in the day.
If option prices were in line with the traded price of the stock, and the stock showed a jump that day, the option would be attractive to an investor, the spokesman said.
He added that an internal Amex investigation of the same charge last spring resulted in the disciplining of 36 people with suspensions of from one to four weeks and fines totaling $195,000.
Amex officials were harshly critical of yesterday's New York State action, saying the men had been punished enough.
Claiming that "no evidence was found that anyone profited or that public investors suffered any economic loss" because of the alleged actions, the Amex statement concludes, "The public interest is not well served when individuals who have been penalized by both the American Exchange and the Securities and Exchange Commission are accused again and put through a third ordeal based on the same circumstances."
The SEC, after opening its own investigation, ordered the Amex to stiffen some of its fines on 36 individuals, including at least two of those indicted yesterday.
An SEC spokesman here said its investigation into options trading was continuing.
Two months ago, former Amex president Robert Reid was arrested and charged with prejury for denying that he was aware of, or directed, specialists to print fictitious call options trades on Amex tapes.
In response to the charges of over-kill from the Amex, Lefkowitz released the following statement late yesterday:
"There is no justification for fictitious transactions prohibited by law. The public investor depends on the authenticity and accuracy of reports as reflected on the transaction tapes and relies on such reports. Investors have a right to know that the transactions seen on the tape are informing him of a real transaction."
In addition, Steven Lapidus, a special assistant attorney general in Lefkowitz' office, said the scheme created a volume of trading action that encouraged the purchase of securities, which, in turn, had the effect of raising the price of a seat on the Amex to almost that of a seat on the large New York Stock Exchange.
The nine men arrested all pleaded innocent to the charges before State Supreme Court Justice Irving Lang in Manhattan. He paroled them until Feb. 21, when motions will be heard in the case.
Arrested were: Arnold Barysh of River Vale, N.J.; Richard Cranmer, West New York, N.J.; Frank Santangelo, Apple Jack Farm, Harrison, N.Y.; Eugene Mauro, New York City; Arthur Rafkind, Riverdale, N.Y.; Walter Newman, Ridgewood, N.J.; George Mitro, New York City; Stuart Kostrinski, Rockaway, N.J.; and Dennis Poster, Westport, Conn.