SEC censures Boston Stock Exchange

The Securities and Exchange Commission said today it has instituted a settled enforcement action against the Boston Stock Exchange and its former president, James B. Crofwell, for failing to police specialists for improper trading practices.

Without admitting or denying the findings, the exchange and Crofwell each consented to a censure and an order to cease and desist from future violations of a securities law that requires exchanges to enforce rules governing member firms, the SEC said.

According to the SEC, the exchange and Crofwell failed to enforce exchange rules designed to prevent specialists from trading for their own accounts ahead of marketable customer orders.

The SEC said it found that the exchange's failure allowed hundreds of violations per day to go undetected despite repeated SEC warnings that the exchange needed to improve its surveillance systems.

As part of the settlement, the exchange agreed to spend at least $1 million to retain a third-party consultant to conduct comprehensive audits of the exchange's surveillance and examination programs, the SEC said.

Crofwell also consented, subject to court approval, to the entry of a final judgment in a related settled civil action ordering him to pay a $75,000 civil penalty, the SEC said.

Crofwell's attorney, Joseph L. Demeo of the Boston law firm Demeo & Associates P.C., said in a statement: "Jim is proud of his long service in the industry. This is an unfortunate incident in an otherwise unblemished career."
(By Chris Reidy, Globe staff)