The SEC has charged 11 more individuals in a fraudulent scheme involving the use of squawk boxes to front run institutional trades.
The SEC, in a civil injunctive action, alleges that five former A.B. Watley daytraders asked retail brokers at Citigroup, Lehman Brothers and Merrill Lynch to provide access to their firms’ institutional equities squawk boxes. Brokers who agreed to the scheme placed telephone receivers next to the squawk boxes, allowing Watley traders to trade based on the overheard customer orders. According to the SEC, between June 2002 and January 2004, the defendants traded ahead of customer orders heard from Citigroup, Merrill Lynch and Lehman Brothers squawk boxes over 400 times, and made gross profits of at least $675,000.
Meanwhile, the U.S. Attorney’s Office in the Eastern District of New York unsealed criminal indictments today against four of Watley’s former and current officers, directors and managers for their alleged involvement in the scheme. Robert Malin, an executive at A.B. Watley, Linus Nwaigwe, a compliance official, Michael Picone, former chief operating officer, and Keevin Leonard, the firm’s former head of proprietary trading, are the latest defendants in the case that dates back to August 2005, when brokers from Citigroup, Lehman Brothers and Merrill Lynch were charged for making available their firms’ squawk boxes. The U.S Attorney’s office estimates the scheme to have generated over $800,000 in illegal profits.
Linda Chatman Thomsen, director of the SEC’s Division of Enforcement, said in a statement, “This fraud stretched from the biggest firms on Wall Street to a small daytrading shop. The common denominator was a willingness to steal confidential market information for use in illegal trading.”
The SEC’s complaint also includes Watley’s parent company, the Watley Group, four Watley proprietary traders and Steven Malin, chairman of the board of directors at the Watley Group—none of which are named in the criminal case.
The SEC complaint seeks disgorgement of profits, penalties, injunction against future violations against the defendants and officer and director bars against Robert Malin, Steven Malin and Picone.
In August 2005, the SEC charged Watley’s chief executive officer, John Amore, and brokers from Citigroup, Lehman Brothers Holdings and Merrill for their parts in the scheme.