By Leslie Gevirtz

NEW YORK (Reuters) - A former New York Mercantile Exchange board member pleaded guilty to defrauding customers and tampering with evidence on Tuesday in exchange for serving 5 months in prison and paying $850,000 in fines and penalties.

In addition to Steven Karvellas, the former NYMEX Holdings Inc (NMX.N: Quote, Profile, Research) director, three others involved in fraudulent trading on the commodities exchange also pleaded guilty, the Manhattan District Attorney's Office said. Three more were arrested and their cases are expected to go to trial, the office said.

Karvellas, who also is a member of the Chicago Mercantile Exchange, owned both Steven J. Karvellas and Co, a natural gas trading company, and Commercial Brokerage Corp, according to court papers. He could have been sentenced to four years in prison on each of the two charges.

Karvellas, his crisp suit as gray as his hair, stood before New York State Supreme Court Justice Daniel Fitzgerald and quietly said the word "Guilty," acknowledging that he had delayed customers' orders to buy or sell natural gas contracts and stolen their trading profits.

Between September 2002 and May 2003, while he was serving as chairman of the exchange's Adjudication and Compliance Review Committee, Karvellas delayed the allocation of customer orders and "if the market went up, he would take that order for himself," said Manhattan District Attorney Robert Morgenthau, comparing Karvellas with "a fox in the chicken house."

By either not filling the orders or filling them at less favorable prices, Karvellas "was able to engage in risk-free investing and deprived the customer of the profits it deserved," according to the plea agreement he signed.

A second floor trader, Thomas Maloney, who worked for his own eponymous firm in the crude pit, also pleaded guilty to charges of violating the Martin Act for trading ahead of customer orders. He is expected to be sentenced to probation and fined $75,000 as part of his plea deal.

Both men were also barred from the industry.