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.
Anyone who hears these kinds of orders can trade in the same issue before the client’s order is completed and benefit from the changes in price that will be caused by the large order. This can, however, can lead to the customer not getting as good a price as he or she would have if the misconduct had not taken place.
According to the government, the three brokers were among those who regularly gave day traders at A.B. Watley information like this through the “squawk boxes.” In return, the traders allegedly paid the brokers large amounts of money via “wash trade” commissions. Some brokers also allegedly received bribes in cash.
The U.S. Securities and Exchange Commission says it will go forward with its civil lawsuits against the defendants for similar misconduct allegations.
If you are an investor who has lost money because of the misconduct of members of the securities industry, contact Shepherd Smith and Edwards right away. We are a law firm dedicated to helping investors like you, and we have a very good success record for helping our clients get their losses back. Shepherd Smith and Edwards offers a free consultation to all prospective clients.
Prosecutors to retry “squawk box” conspiracy case, Reuters, May 24, 2007
Two Ex-Brokers Acquitted in `Squawk’ Case; One Guilty, Bloomberg.com, May 10, 2007