The U.S. Court of Appeals for the Second has vacated the convictions of six brokers who were criminally charged in a front-running scam to give day traders privileged information via brokerage firms’ squawk boxes. The case is United States v. Mahaffy.
Judge Barrington Parker said that confidence in the jury’s verdict was undermined because the government did not disclose a number of SEC deposition transcripts “pursuant to Brady v. Maryland, 373 U.S. 83 (1963).” Also, noting that there were flaws in the instructions that the jury was given, the second circuit vacated the honest-services fraud convictions that they had issued against the defendant.
The brokers, who were employed by different brokerage firms, had been charged for conspiring to provide A.B. Watley day traders confidential data about securities transactions. This entailed putting phone receivers close to the broker-dealers internal speaker systems so that the traders could make trades in the securities that were squawked before the customer orders were executed.