Press Release: SEC Charges Boston Stock Exchange and Former President James Crofwell With Failing to Police Specialists
The SEC charged the Boston Stock Exchange and its former president James B. Crofwell with failing to enforce rules against specialists front-running customer orders from 1999 to 2004, resulting in hundreds of daily violations, with BSE agreeing to a $1M audit and cease-and-desist order and Crofwell paying a $75,000 civil penalty without admitting guilt.
The SEC alleged that from 1999 to 2004, the Boston Stock Exchange and its former president James B. Crofwell failed to enforce rules prohibiting specialists from trading ahead of customer orders, allowing hundreds of violations per day despite repeated warnings. The Exchange consented to a censure, a cease-and-desist order, and a commitment to spend at least $1 million on an independent audit of its surveillance and disciplinary programs. Crofwell agreed to a $75,000 civil penalty for aiding and abetting violations of Section 19(g) of the Exchange Act, without admitting or denying the findings.
The SEC charged the Boston Stock Exchange (BSE) and its former president, James B. Crofwell, with failing to enforce rules that prohibited specialist firms from front-running customer orders between 1999 and 2004, resulting in hundreds of daily violations. Despite repeated warnings from SEC staff that its surveillance systems were inadequate, the Exchange did not allocate sufficient resources to detect or prevent misconduct, and Crofwell was found to have known about the deficiencies but failed to act. Without admitting or denying the allegations, BSE agreed to a censure, a cease-and-desist order, and a mandatory $1 million expenditure to hire an independent consultant to audit and reform its regulatory, examination, investigation, and disciplinary programs. Crofwell consented to a $75,000 civil penalty and a court-ordered judgment for aiding and abetting the Exchange’s violations of Section 19(g) of the Exchange Act. The settlement was designed to strengthen BSE’s oversight capabilities and enhance investor protection by ensuring robust internal controls. The SEC emphasized that self-regulatory organizations must actively enforce their own rules and invest in effective surveillance systems. This case underscored the Commission’s commitment to holding both institutions and individuals accountable for regulatory failures that undermine market integrity.
Extracted insights
- $1.00M $1 million $1M–$10M
- $75K $75,000 $10K–$100K
- person boston stock exchange
- person david p. bergers
- agency director of sec's division of enforcement
- person james b. crofwell
- person linda chatman thomsen
- agency regional director of sec's boston regional office
- agency Securities and Exchange Commission
- SEC charged Boston Stock Exchange and James B. Crofwell with failing to police specialists
- Boston Stock Exchange failed to enforce Exchange rules preventing specialists from trading ahead of customer orders
- James B. Crofwell failed to enforce Exchange rules preventing specialists from trading ahead of customer orders
- Boston Stock Exchange allowed hundreds of violations per day from 1999 to 2004
- James B. Crofwell knew procedures in effect were inadequate but failed to devote resources to correct
- Boston Stock Exchange consented to censure and cease and desist order
- James B. Crofwell consented to censure and cease and desist order
- Boston Stock Exchange agreed to spend $1 million for third-party consultant to conduct surveillance audits
- James B. Crofwell ordered to pay $75,000 civil penalty for aiding and abetting violations
- Linda Chatman Thomsen is Director of SEC's Division of Enforcement
- David P. Bergers is Regional Director of SEC's Boston Regional Office
SEC Charges Boston Stock Exchange and Former President James Crofwell With Failing to Police Specialists FOR IMMEDIATE RELEASE 2007-171 Washington, D.C., Sept. 5, 2007 - The Securities and Exchange Commission today instituted a settled enforcement action against the Boston Stock Exchange and its former president James B. Crofwell for failing to enforce Exchange rules to prevent specialists from trading for their own accounts ahead of marketable customer orders. The Commission's Order against the Exchange and Crofwell finds that the Exchange's failure allowed hundreds of violations per day to go undetected even after the Commission staff had repeatedly warned the Exchange it needed to improve its surveillance systems. "As today's action shows, the Commission continues to be vigilant in seeking to ensure that self-regulatory organizations fulfill their obligations as regulators," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "Self-regulatory organizations must expend the resources necessary to vigorously enforce their own rules and to detect and prevent misconduct by their member firms." David P. Bergers, Regional Director of the Commission's Boston Regional Office, added, "This settlement will strengthen the Boston Stock Exchange's regulatory functions and enhance investor protection. The audit called for by the settlement will assist the Exchange in making improvements to its surveillance program and help prevent misconduct from going undetected." According to the Commission's Order, from 1999 to 2004, the Exchange and Crofwell failed to enforce Exchange rules that prohibited Exchange dealer specialist firms from trading securities for their own benefit at the expense of their customers. The Order finds that the Exchange failed to conduct adequate surveillance to detect and prevent violations of the customer priority rules. The Order also finds that Crofwell knew that the procedures then in effect were inadequate, but failed to devote resources necessary to correct the problem. Without admitting or denying the findings in the Commission's Order, the Exchange and Crofwell each consented to a censure and an order to cease and desist from future violations of Section 19(g) of the Exchange Act, which requires exchanges to enforce rules governing member firms. The Exchange further agreed to comply with specific undertakings contained in the Order, including expenditure of at least $1 million to retain a third-party consultant to conduct comprehensive audits of the Exchange's surveillance, examination, investigation and disciplinary programs relating to trading, and implementation of the consultant's recommendations. Crofwell also consented, subject to court approval, to entry of a final judgment in a related settled civil action filed in the U.S. District Court for the District of Massachusetts, ordering him to pay a $75,000 civil penalty for aiding and abetting the Exchange's violations of section 19(g) of the Exchange Act. # # # For more information, contact: David P. Bergers Regional Director 617-573-8927 Celia D. Moore Deputy Assistant Director 617-573-8976 SEC's Boston Regional Office Additional materials: Litigation Release No. 20265; Administrative Proceeding 34-56352 http://www.sec.gov/news/press/2007/2007-171.htm Home | Previous Page Modified: 09/05/2007
SEC Charges Boston Stock Exchange and Former President James Crofwell With Failing to Police Specialists FOR IMMEDIATE RELEASE 2007-171 Washington, D.C., Sept. 5, 2007 - The Securities and Exchange Commission today instituted a settled enforcement action against the Boston Stock Exchange and its former president James B. Crofwell for failing to enforce Exchange rules to prevent specialists from trading for their own accounts ahead of marketable customer orders. The Commission's Order against the Exchange and Crofwell finds that the Exchange's failure allowed hundreds of violations per day to go undetected even after the Commission staff had repeatedly warned the Exchange it needed to improve its surveillance systems. "As today's action shows, the Commission continues to be vigilant in seeking to ensure that self-regulatory organizations fulfill their obligations as regulators," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "Self-regulatory organizations must expend the resources necessary to vigorously enforce their own rules and to detect and prevent misconduct by their member firms." David P. Bergers, Regional Director of the Commission's Boston Regional Office, added, "This settlement will strengthen the Boston Stock Exchange's regulatory functions and enhance investor protection. The audit called for by the settlement will assist the Exchange in making improvements to its surveillance program and help prevent misconduct from going undetected." According to the Commission's Order, from 1999 to 2004, the Exchange and Crofwell failed to enforce Exchange rules that prohibited Exchange dealer specialist firms from trading securities for their own benefit at the expense of their customers. The Order finds that the Exchange failed to conduct adequate surveillance to detect and prevent violations of the customer priority rules. The Order also finds that Crofwell knew that the procedures then in effect were inadequate, but failed to devote resources necessary to correct the problem. Without admitting or denying the findings in the Commission's Order, the Exchange and Crofwell each consented to a censure and an order to cease and desist from future violations of Section 19(g) of the Exchange Act, which requires exchanges to enforce rules governing member firms. The Exchange further agreed to comply with specific undertakings contained in the Order, including expenditure of at least $1 million to retain a third-party consultant to conduct comprehensive audits of the Exchange's surveillance, examination, investigation and disciplinary programs relating to trading, and implementation of the consultant's recommendations. Crofwell also consented, subject to court approval, to entry of a final judgment in a related settled civil action filed in the U.S. District Court for the District of Massachusetts, ordering him to pay a $75,000 civil penalty for aiding and abetting the Exchange's violations of section 19(g) of the Exchange Act. # # # For more information, contact: David P. Bergers Regional Director 617-573-8927 Celia D. Moore Deputy Assistant Director 617-573-8976 SEC's Boston Regional Office Additional materials: Litigation Release No. 20265; Administrative Proceeding 34-56352 http://www.sec.gov/news/press/2007/2007-171.htm Home | Previous Page Modified: 09/05/2007