United States v. Finnerty, No. 07-1104-cr (2d Cir. July 18, 2008) (Jacobs, Pooler, CJJ, Restani, J)
The New York Stock Exchange functions, essentially, as an auction market. Specialist firms are designated to facilitate the auction of a particular stock by processing the bids to buy and offers to sell it. Specialists also trade for their own firm’s accounts. “Interpositioning” occurs when the specialist interposes himself in the middle of public trades to make a profit for the firm. It is prohibited by NYSE rules.
Defendant Finnerty engaged in thousands of instances of interpositioning, making $4,500,000 in profit for the firm’s account, and thereby inflating his bonus. He was charged with, and convicted of, three counts of securities fraud. After trial, the district court granted his motion for a judgment of acquittal, holding that the government failed to prove that interpositioning was a “deceptive act” under securities law because the government …