U.S. Charges 4 Brokers in Eavesdropping Probe; SEC Sues Trader

Aug. 15 (Bloomberg) — U.S. officials filed criminal charges and civil lawsuits against former Citigroup Inc., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. brokers, claiming they allowed a day trader to eavesdrop on conversations with institutional clients.

John Amore, who was chief executive officer of the Watley Group, paid the brokers to give him access to the firms’ “squawk boxes” — internal intercom systems they use to communicate buy and sell orders, the Securities and Exchange Commission said today in a statement. Amore then took positions in anticipation of market movements that followed the trades.

“These brokers sold day traders real-time access to their firms’ confidential information on institutional orders to enable the day traders to profit from the information,” Linda Thomsen, director of the SEC’s division of enforcement, said in a statement. “Our joint action with the U.S. Attorney’s Office sends a clear message that such abuses will not be tolerated.”

The U.S. Attorney’s Office for the Eastern District of New York in Brooklyn filed criminal charges against the four brokers, Ralph D. Casbarro, formerly of Citigroup; David G. Ghysels, formerly of Lehman Brothers; Kenneth E. Mahaffy, formerly of Merrill and Citigroup; and Timothy J. O’Connell, formerly of Merrill.

The SEC sued the brokers and Amore, who is 42.

To contact the reporter on this story:
Demian McLean in Washington at dmclean8@bloomberg.net
Last Updated: August 15, 2005 11:45 EDT
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