Amex Exchange Accused of Lying to SEC

The American Stock Exchange, the nation’s third largest exchange, has been charged with failing to adequately supervise options trading, violating an SEC order that it tighten up its enforcement. The Amex is further charged with lying to regulators in an effort to hide the supervision failures, SEC inspectors have stated.

In September 2000, the Amex agreed to tighten up its enforcement at the behest of the SEC. Now the Amex is accused of breaking that deal and with a “deliberate attempt to conceal serious deficiencies” in its oversight procedures, SEC staff examiners charged in a 32-page report, obtained by Bloomberg News.

“The staff is seriously concerned'” that violations in the Amex's handling of customer options trades “are continuing to go undetected, unreviewed and unsanctioned,” SEC compliance director Lori Richards informed Amex Chairman and Chief Executive Officer Salvatore Sodano in a cover letter to the report and reported by Bloomberg.

The Amex problems came to light in the wake of the crisis surrounding the $187.5 million deferred compensation package paid to Richard Grasso, former chairman of the New York Stock Exchange.

“There's increasing skepticism that the industry is able to regulate itself,” Alan Bromberg, a law professor at Southern Methodist University in Dallas, told Bloomberg. “Pressure is building for change in the way the markets function and who regulates them.”

The SEC’s report found that the Amex’s board of governors failed to ensure that the 2000 agreement was being followed. The SEC referred to the minutes of 12 board meetings since its agreement in 2000 with the exchange. There'd been “no discussion” of efforts to improve Amex surveillance, investigative and enforcement processes since then, the SEC said.

The SEC sent its report to the Amex on June 16 as news surfaced that its parent NASD Inc. announced plans to sell the exchange to the Chicago-based GTCR Golder Rauner LLC for about $110 million. Amex spokesman Robert Rendine told Bloomberg that GTCR is aware of the SEC’s report and that negotiations are ongoing.

“The exchange has been cooperating fully with the SEC,” Rendine told Bloomberg. Amex also hired law firm Davis, Polk & Wardwell to conduct “a comprehensive review” of its surveillance of trading and is carrying out the firm's recommendations, he said.


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