U.S. jury finds brokers guilty in squawk box trial

Three former brokers and three former day traders conspired to misuse company squawk boxes for insider trading, a U.S. jury ruled on Wednesday in the second trial in the case.

The jury in U.S. District Court in Brooklyn in New York deliberated for less than three days before issuing the guilty verdicts against all six defendants on a charge of conspiracy.

Prosecutors accused former stock brokers at Merrill Lynch & Co Inc and Citigroup Inc and now bankrupt Lehman Brothers Holdings Inc of generating millions of dollars in illegal profits. Merrill has been owned by Bank of America since January.

They were charged with scheming between 2002 and 2004 to allow day traders at the now-defunct New York broker-dealer A.B. Watley Inc to routinely listen to their firms' internal speaker systems known as squawk boxes through open telephone lines. The speakers broadcast pending orders by institutional customers, and are deemed confidential.

In exchange for access to the squawk box information, the day traders paid bribes to the defendants in the form of commissions from other trades, the U.S. Attorney's Office in Brooklyn said in a statement.

The brokers and day traders each face up to 25 years' imprisonment when they are sentenced by U.S. District Judge John Gleeson on July 31.

Three former brokers and four former day traders were acquitted in a trial in the same court in 2007 of fraud charges, but the jury failed to reach a decision on a conspiracy charge, leading to a mistrial.

In the second trial that began on March 30, each of the six defendants was charged with one count of conspiracy to commit securities fraud.

In March, Merrill agreed to pay $7 million to settle U.S. Securities and Exchange Commission charges that it gave day traders improper access to confidential information broadcast on the squawk boxes. Merrill did not admit wrongdoing, but agreed to tighten procedures to help ensure the confidentiality of customer orders.

The SEC said several Merrill brokers at three branch offices from 2002 to 2004 would put their telephone receivers next to the squawk boxes.

The brokers convicted on Wednesday are Kenneth Mahaffy, formerly of Merrill and Citigroup; David Ghysels, formerly of Lehman; and Timothy O'Connell, formerly of Merrill.

Three former Watley executives, Keevin Leonard, Robert Malin and Linus Nwaigwe, were also convicted.

In 2007, a jury convicted only O'Connell, on charges of witness tampering and making a false statement. He was sentenced to a year in prison.

The government dropped its case against a seventh person, Watley Chief Operating Officer Michael Picone.

The case is US v. Mahaffy 05-00613, U.S. District Court for the Eastern District of New York (Brooklyn)

(Reporting by Grant McCool, editing by Dave Zimmerman, Richard Chang and Matthew Lewis)