Wednesday, February 29, 2012

Brokers Plead Not Guilty in Eavesdropping Case - New York Times

Brokers Plead Not Guilty in Eavesdropping Case

March 25th 2006

Three former stockbrokers from Merrill Lynch and Lehman Brothers Holdings and four former and current executives at the online brokerage firm A. B. Watley Group pleaded not guilty yesterday to charges involving a suspected scheme to let day traders eavesdrop on confidential conversations.

The seven charged, who are free on bond, were arraigned before Judge I. Leo Glasser in Federal District Court in Brooklyn on securities fraud, conspiracy and other charges. They are accused of participating in what prosecutors described as a "front-running scheme" in which Watley traders improperly obtained inside information about large orders to buy or sell stock ahead of institutional customers.

The charges stem from an indictment announced on Tuesday by federal prosecutors in Brooklyn that added charges and defendants to a previous indictment issued in August 2005; that indictment named two stockbrokers at Merrill Lynch and a stockbroker at Lehman Brothers. The earlier indictment accused the brokers of accepting thousands of dollars from the day traders for the chance to eavesdrop on firm intercoms, called squawk boxes, and obtain confidential information.

The seven defendants each entered pleas of not guilty to the new charges. Judge Glasser scheduled the next court hearing in the case for June 29.

The new indictment charges that Watley day traders used the illegal information to generate more than $800,000 in profit from trading shares of Citigroup, Home Depot and Pfizer from January 2002 to February 2004.

On Tuesday, the Securities and Exchange Commission filed charges against four Watley managers and six former day traders at the firm.

Those who entered not guilty pleas to the latest charges were Kenneth E. Mahaffy Jr., 50, a Merrill Lynch stockbroker; Timothy J. O'Connell, 41, a Merrill broker; David G. Ghysels Jr., 48, a Lehman broker; Robert F. Malin, 41, Watley's vice chairman; Linus Nwaigwe, 49, the firm's director of compliance; Michael Picone, 50, former chief operating officer; and Keevin H. Leonard, 45, Watley's former supervisor of proprietary trading.

All declined to comment as did their lawyers.

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