Articles Posted in A.B. Watley

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.

In the U.S. District Court for the Eastern District of New York, a jury issued its verdict in the “squawk box” front running case. Seven people were acquitted of securities fraud, while Timothy O’Connell, a former Merrill Lynch & Co. stockbroker was found guilty of making false statements and of witness tampering. The judge, however, declared a mistrial for the one remaining conspiracy count to commit securities fraud against O’Connell. He faces up to 15 years in prison for the convictions, and prosecutors have announced that they will retry the conspiracy charge.

According to prosecutors, O’Connell, and the two other broker defendants, David Ghysels-a former Lehman Brothers broker-and Kenneth Mahaffy-a former Merrill Lynch & Co. brokers, purposely placed off-the-hook phones that were active next to internal speaker systems at their firms.

The purpose of doing this was to let a number of former A.B. Watley employees, including ex-president Robert Malin, former proprietary trading supervisor Keevan Leonard, former compliance director Linus Nwaigwe, and former CEO Michael Picone, listen in while large orders about to be made by institutional clients were broadcast over the boxes.