A former New York Stock Exchange floor broker filed an explosive $22 million lawsuit yesterday claiming the Big Board and its Chairman, Richard Grasso, encouraged hundreds of brokers to trade illegally through profit-sharing arrangements.
John D’Alessio alleges that Big Board officials knew profit-sharing schemes were illegal but did not stop them because the Exchange was making money off the trading fees.
The jaw-dropping complaint, filed in New York County Supreme Court, also alleges that NYSE officials made false statements to federal prosecutors and conspired to violate federal securities laws.
The NYSE said it could not comment on pending litigation.
On Monday, a federal judge indicated he would sentence nine floor brokers involved in the Oakford case to jail terms between six months and a year for illegally profiting from information they got on the Exchange floor.
In profit-sharing arrangements, floor brokers would trade for the account of a customer — often “flipping” stocks repeatedly for small gains each time — in return for a cut of the profit.
D’Alessio was originally arrested with the other nine in early 1998 but the charges against him were later dropped by the U.S. Attorney.
D’Alessio’s suit claims NYSE officials were responsible for his arrest.
“The Complaint charges the defendants did this by falsely informing the United States Attorney’s Office that D’Alessio’s profit sharing arrangement with one of his customers, the Oakford Corporation, was not known to and approved by the NYSE,” his lawyer Dominic Amorosa said.
“The Complaint asserts that the defendants were well aware from 1991 that D’Alessio and hundreds of other floor brokers were engaging in this practice.”
D’Alessio’s most damaging claim is that NYSE officials knew profit-sharing was illegal but allowed it to continue for the sake of the bottom line.
D’Alessio — suing for injurious falsehood, willful and negligent misrepresentation and breach of contract — wants $250,000 for his legal fees, $2 million for losing his income and Exchange seat and $20 million in punitive damages.
The suit also names Exchange officials Edward A. Kwalwasser and Robert J. McSweeney.