Home-Field Advantage at the Boston Stock Exchange

The Boston Stock Exchange and its former president settled charges today that they failed to prevent specialist firms from trading in their own accounts, thus benefiting themselves ahead of their customers.

Under the settlement, the exchange and its former president, James B. Crofwell, did not admit or deny the Securities and Exchange Commission's claim of failure to supervise such activity over the five-year period from 1999 to 2004.

Securities regulators said the hundreds of trading violations went undetected daily despite multiple warnings from the commission that the exchange surveillance systems needed to be upgraded.

The S.E.C.'s complaint alleged that Crofwell knew that oversight was inadequate—even stating in writing to the commission that procedures would be implemented by a specific target date—but still failed to correct the problem.

The cost? The exchange agreed to spend $1 million to hire and outside consultant to comprehensively audit its oversight and disciplinary programs and to implement those recommendations.

Crofwell, 55, of Scituate, Mass., who worked for the exchange from 1986 until he resigned in 2003, agreed to pay $75,000 to settle charges that he aided and abetted the exchange's violations.

Joseph L. Demeo, who is Crofwell's lawyer, said, "Jim is proud of his long service in the industry. This is an unfortunate incident in an otherwise unblemished career."

by Elizabeth Olson