Former Stockbrokers From Citigroup, Lehman Brothers Holding, and Citigroup Among Defendants Convicted for Conspiracy Related to “Squawk Box” Securities Fraud Scam

Six people have been convicted for conspiracy to commit securities fraud in a scheme involving the abuse of “squawk boxes.” The defendants convicted include former Citigroup/Smith Barney and Merrill Lynch broker Kenneth Mahaffy, former Lehman Brothers employee David Ghysels Jr., former Merrill broker Timothy O’Connell, former AB Watley Group Inc. president and vice chairman Robert F. Malin, and former AB Watley employees Keevin H. Leonard and Linus Nwaigwe.

During the trial, the government established that O’Connell, Mahaffy, and Ghysels regularly gave confidential data regarding customer orders to day traders at Ab Watley, E*Trade Professional Trading, and Millennium Brokerage. They did this using “squawk boxes” at Citigroup, Merrill, and Lehman.

The broker defendants are accused of leaving their phones off the hook and placing them next to squawk boxes so that the day traders could hear the client orders as they were called out. In return for the data, the day traders paid the defendants commissions from “wash trades” that came through brokerage accounts that the day traders had set up with the defendants. The day traders made money by before the large orders that were announced on the squawk boxes were executed. The day traders also would sell short a particular security after a large sell order for that same stock was announced on the squawk box.

The defendants are facing up to 25 years in prison, a fine, five years’ supervised release, and restitution. All of the men are free on bail until their July 31 sentencing hearing and they’ve been asked to give up their passports.

This is the second trial against the defendants. All of them were acquitted of 20 securities fraud charges during a previous trial in 2007. The jury had deadlocked on a number of the charges. For this second trial, federal prosecutors decided to charge the six defendants solely with conspiracy to commit securities fraud.

Shepherd Smith Edwards & Kantas LTD LLP and stockbroker fraud attorney William Shepherd has this to say: “Note that only the little guys on Wall Street go to jail while the fat-cats get big bonuses.”

Related Web Resources:
‘Squawk Box’ Jury Finds Brokers Guilty of Conspiracy, Bloomberg.com, April 22, 2009
Six Convicted In Squawk Box Illegal Trading, NorthCountryGazette.com, April 23, 2009
Squawk Box, Investopedia
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