U.S. reaches deals to end "squawk box" cases

Reuters News
Posted: Mar 28, 2013 1:06 PM

By Jessica Dye

NEW YORK (Reuters) - U.S. prosecutors said on Thursday they reached deals to resolve cases against former brokers and traders whose convictions for misusing information broadcast over internal "squawk box" systems to generate illegal profits were overturned last year.

During a hearing in U.S. District Court in Brooklyn, assistant U.S. attorney James McMahon said all six defendants had entered into deferred prosecution agreements with the government to end the long-running criminal cases.

The agreements call for the criminal cases to be dropped if after a certain period of time the defendants stay out of legal trouble and meet other conditions. The durations of those agreements vary among defendants from six months to five years, McMahon said.

The agreement bans the men from committing state or federal felonies during the duration of the deal and from violating certain securities regulations, he said.

Additional details of the agreements were not publicly available. The U.S. attorney's office declined further comment.

The defendants were charged in 2005 with scheming with traders at the now defunct broker-dealer A.B. Watley Inc to generate millions of dollars in illegal profits. Prosecutors said between 2002 and 2004, the traders were allowed to listen to pending orders by institutional customers over brokerage firms' internal speaker systems, known as "squawk boxes."

The defendants were each convicted in 2009 of one count of conspiracy to commit securities fraud. Last August, the 2nd U.S. Circuit Court of Appeals threw out the convictions, saying prosecutors had withheld evidence and that jurors had been inadequately instructed.

The six defendants are Kenneth Mahaffy, formerly of Merrill Lynch & Co Inc., now part of Bank of America Corp, and Citigroup Inc; David Ghysels, formerly of Lehman Brothers Holdings Inc; Timothy O'Connell, formerly of Merrill; and Keevin Leonard, Robert Malin and Linus Nwaigwe, all formerly of Watley.

If the defendants meet the terms of the deferred prosecution agreements, the charges will be dismissed with prejudice, meaning they cannot be refiled.

Andrew Firsch, an attorney for Mahaffy, said Thursday that while his client was relieved to put the case behind him, "he can't get the 7-1/2 years back" he spent fighting the charges.

Mildred Whalen, a lawyer for O'Connell, said her client was "glad this ordeal will be over soon. Roland Riopelle, a lawyer for Malin, said he was "relieved and gratified" by the arrangement. Lawyers for the other defendants did not immediately return requests for comment Thursday.

Four of the defendants, excluding Nwaigwe and Leonard, have reached agreements to settle related civil cases brought by the U.S. Securities and Exchange Commission, McMahon said during the hearing. The SEC did not immediately return a request for comment.

(Reporting by Jessica Dye; Editing by Noeleen Walder, Andrew Hay and Leslie Adler)

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