The Securities and Exchange Commission has charged four brokers and a day trader for improperly using a squawk box, the internal Wall Street communications system.
According to federal regulators, John J. Amore, a day trader at Watley Group, has been charged with paying off brokers from Lehman Brothers and Merrill Lynch, to allow him to eavesdrop on institutional orders to buy and sell large blocks of securities. Amore, 42, of Manhasset, N.Y., would trade ahead of the large orders and profit from the price movements.
Ralph D. Casbarro, 43, of Bayside, N.Y. and Citigroup Global Markets; David G. Ghysels, 47, of West Palm Beach, Fla. and Lehman Brothers; and Merrill Lynch's Kenneth E. Mahaffy, 50, of Huntington N.Y., and Timothy O'Connell, 43, of Carle, N.Y., are charged with providing live audio access to Amore.
The SEC claims that the squawk boxes were used for those purposes at least 400 times between February of 2002 and September of 2003, making a gross profit of approximately $650,000.
The brokers were compensated with commission-generating trades, and Casbarro and Mahaffy were given secret cash payments for their services, the SEC said.
The defendants violated Section 17(a) Securities Act of 1933 and Section 10 (b) of the Securities and Exchange Act of 1934, which prohibit illegal profits.
Mark K. Schonfeld, Director of Commission's Northeast Regional office, said, "These brokers were duty-bound to keep information about large customer orders confidential and to use it to benefit the customer. By using that information for their personal gain, the defendants not only harm the customer, they threaten to undermine the integrity of our markets."