4 Ex-Brokers Indicted in Day Trader Scheme

Four former Wall Street brokers have been indicted for a scheme allowing day traders to eavesdrop on internal communications and profit by trading ahead of large share orders and subsequent price movements, U.S. prosecutors said Monday.

The brokers were accused of securities fraud, conspiracy and receiving commercial bribes, according to an indictment unsealed in U.S. District Court in Brooklyn on Monday. The Securities and Exchange Commission also charged the four former brokers as well as a day trader who paid for the information.

The four brokers -- Ralph Casbarro, who worked at Citigroup Global Markets; David Ghysels, formerly at Lehman Bros.; Kenneth Mahaffy, previously at Merrill Lynch and Citigroup; and Timothy O’Connell, formerly at Merrill Lynch -- provided day traders at A.B. Watley Inc. and Millennium Brokerage with material, nonpublic information, according to the indictment.

Day trader John Amore, of A.B. Watley, was accused by the SEC of paying the brokers to gain live audio access to the Wall Street firms’ so-called internal squawk boxes that broadcast institutional orders to buy or sell large blocks of securities.

The traders listened via telephone to the squawk boxes and traded ahead of the large orders to make a profit from the price movements, the SEC said. The SEC said that on more than 400 occasions, day traders at A.B. Watley traded ahead of the large orders from at least June 2002 to September 2003, making gross profits of at least $650,000.

An A.B. Watley executive said the firm reported the matter to the U.S. attorney’s office about two years ago. Attorneys for Amore and Casbarro declined to comment. Lawyers for O’Connell, Mahaffy and Ghysels could not be reached.