US prosecutors and regulators yesterday pressed criminal and civil fraud charges against former brokers at leading investment banks who allegedly disclosed confidential information that enabled traders at another financial services firm to make profits of at least $650,000 (€525,635).
The US attorney for the eastern district of New York and the Securities and Exchange Commission (SEC) took action against four brokers who used to work for Citigroup, Lehman Brothers and Merrill Lynch.
The SEC also issued civil fraud charges against John Amore, former chief executive of Watley Group.
The SEC alleged he paid the brokers to provide access to confidential information about large orders by institutional investors to buy and sell stocks.
The information was taken from devices known as squawk boxes, which are used internally by firms to broadcast details of orders to buy and sell securities. The content relayed over the devices is supposed to be kept confidential, but the SEC alleged that Mr Amore asked the four brokers to provide access to their firms' squawk boxes. It said the brokers made telephone calls to Watley and placed their receivers next to the devices.
"Amore directed traders working for him to listen to the pirated squawk boxes and trade ahead of the institutional orders to profit from price movements that resulted from execution of the large customer order," said the SEC.
Watley employees traded ahead of orders they heard on the squawk boxes at Citigroup, Lehman and Merrill on more than 400 occasions between June 2002 and September 2003, and generated at least $650,000 in gross profits, according to the SEC.
The four brokers are Ralph Casbarro, who worked for Citigroup until March 2005; David Ghysels, who worked for Lehman until March 2003; Kenneth Mahaffy, who worked for Merrill and then Citigroup between December 1997 and June 2005; and Timothy O'Connell, who worked for Merrill until February 2005.
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