A 48-year old former floor trader at the New York Stock Exchange was busted yesterday for operating a “front-running” scheme that netted him $300,000 over 17 months.
Frank Furino, who worked for Lawrence Helfant at the time, was indicted and charged with tipping off a day trader at least 58 times to large orders to purchase or sell stock and then delayed taking action on the customer’s order until the trader could move, court papers charge.
Furino allegedly called the day trader right from the floor of the exchange.
In return, the trader, who is only identified in court papers as an unindicted co-conspirator, paid Furino between $2,500 and $10,000 in cash per tip, federal prosecutors in Brooklyn charge.
“Furino betrayed his own firm’s clients by stealing valuable, confidential information and selling it to a corrupt stock trader,” Roslynn Mauskopf, the U.S. Attorney in Brooklyn, said in a statement, after filing the indictment.
In addition, Furino benefited by collecting fatter commission checks as the day trader used Helfant in his trades. In fact, at one point Furino put pressure on the day trader, telling him he had to “show volume” in his Helfant trades if he wanted the tips to continue.
Furino, of upscale Port Washington, L.I., operated the fraud between August 2000 and December 2001, it is charged.
Calls to his lawyer for comment were not immediately returned. No one was answering the phone at his home.
The Securities and Exchange Commission filed a civil complaint against Furino yesterday, as well, seeking every penny Furino improperly pocketed. The NYSE started an enforcement action.
In one trade using the scheme outlined in the criminal indictment, Furino called the day trader on Oct. 25, 2000, and secretly tipped him to a customer’s order to buy 84,500 shares of Computer Associates, according to court papers. The day trader then allegedly bought 17,000 shares of CA at an average price of $28.27.
Within one minute, the trader unloaded the 17,000 shares, through Helfant, at $29 a share, netting himself a nifty profit of roughly $12,337, it is charged.
Furino then put through the customer trade at $29 a share.
The SEC outlined a second get-together between the conspirators, this one on Feb. 15, 2001. During this early morning fraud, Furino tipped the trader to an upcoming larger order for McDonald’s Corp. shares.
The trader purchased 31,500 shares of McDonald’s at an average price of $29.41 between 9:34 a.m. and 9:40 a.m. At 9:41 a.m., Helfant executed the customer order.
The customer had to pay $29.64 and could have gotten a better price if the day trader had not been tipped and made his purchase.
Furino faces up to 10 years in prison for each of the nine fraud counts and up to five years on the single conspiracy charge.
Anatomy of a scam
An ex-floor broker at the New York Stock Exchange helped a day trader to $300,000 in illegal profits, federal authorities charge. Here’s how they said he did it:
* A large order – to sell or buy – is received from an institutional customer.
* Before putting through the order, the broker alerts a day trader to the content of the order.
* The day trader then “trades ahead” of the outsize order.
* The day trader closes his position after the broker’s firm fills the large order, scoring a profit on the movement in the stock’s price caused by the later order.
* The broker receives payments from $2.5K to $10K per month.