Court reverses convictions of 2 ex-NYSE specialists

NEW YORK (Reuters) - A federal appeals court reversed the convictions of two former New York Stock Exchange floor traders on Wednesday, the latest blow to a U.S. government case that had originally charged 15 traders with fraud.

The U.S. Court of Appeals for the Second Circuit overturned the convictions of Michael Hayward and Michael Stern, former specialists for Van der Moolen Specialists USA, a unit of Amsterdam-based Van der Moolen Holding NV (VDMN.AS).

In January, the two had each been sentenced to six months in prison and fined $250,000 after being found guilty of one count of securities fraud at trial.

In a written order, a panel of three judges on the appeals court said the evidence against the men "was insufficient to prove 'deception."'

Hayward and Stern had been specialists on the NYSE trading floor, responsible for executing trades for NYSE customers as well as trading their firm's own accounts.

The government originally charged Hayward and Stern, along with 13 other former NYSE specialists, with fraud for violating securities law by trading ahead of or between customer orders, creating millions in illegal profits.

But prosecutors have had mixed results, and Manhattan U.S. Attorney Michael Garcia said in November 2006 that he would not prosecute five of the cases awaiting trial.

Last year, a Manhattan federal court judge tossed out the verdict against former specialist David Finnerty, who was found guilty of fraud in October 2006 for allegedly making illegal trades that cheated the exchange's customers out of $4.5 million. The Second Circuit upheld the judge's decision to throw out the conviction in a ruling earlier this month, and cited that decision in its ruling to overturn the case against Hayward and Stern.

(Reporting by Chelsea Emery, editing by Dave Zimmerman)