Investment-blog.net: Stocks, Emerging markets, Bonds, Currencies and Commodities

Markets are constantly in a state of uncertainty and flux and money is make by discounting the obvious and betting on the unexpected. - George Soros

Judge Denies Latest Bid To Dismiss ‘Squawk Box’ Case

Sep.12, 2008 in Market Outlook

NEW YORK (Dow Jones)–A federal judge on Friday denied a motion by a group of
ex-securities brokers and former A.B. Watley Inc. executives to dismiss a
criminal case against them in an alleged scheme to misuse brokerage firm “squawk”
boxes.

At a hearing Friday, U.S. District Judge Jack Weinstein refused to dismiss the
remaining conspiracy count against three ex-brokers at Merrill Lynch & Co. (MER),
Citigroup Inc.’s (C) Smith Barney unit and Lehman Brothers Holding (LEH) and four
former executives at Watley, a defunct day-trading firm. The trial is set for
Nov. 17.

“Nothing said this morning has convinced me a motion to dismiss can be
sustained,” the judge said. “Motion denied.”

In July, the 2nd Circuit Court of Appeals said that prosecutors can proceed with
a retrial of the men on a single count of conspiracy to commit securities fraud.

Prosecutors have alleged that three ex-brokers placed open telephone lines next
to the internal speaker systems at their companies so that Watley day traders
could secretly eavesdrop on block orders by institutional clients.

The day traders would then use that information to front-run, or improperly jump
ahead of client orders, the government said. The brokers were bribed with cash
and “wash” trades, transactions designed simply to generate a commission,
prosecutors said.

In May 2007, a jury delivered a partial verdict in the case, and a mistrial was
declared after the jury failed to reach a verdict on the conspiracy count. The
jury convicted ex-Merrill Lynch broker Timothy O’Connell of witness tampering and
making a false statement, but acquitted O’Connell and six others of securities
fraud and other charges in the matter.

In July, the appeals court overturned O’Connell’s conviction of making a false
statement and ordered a new trial on that count, citing an improper instruction
to the jury. The circuit upheld his conviction on a witness tampering count.

O’Connell was sentenced to a year and a day in prison on the charges last year
and completed his prison term in February.

The defendants are Kenneth Mahaffy, a former Merrill Lynch and Smith Barney
broker; O’Connell; David G. Ghysels Jr., a former Lehman broker; Robert Malin,
A.B. Watley’s former president; Linus Nwaigwe, Watley’s ex-director of
compliance; Michael A. Picone, Watley’s one-time chief operating officer; and
Keevin H. Leonard, who at one time supervised and trained Watley’s day traders.

Did you like this? If so, please bookmark it,