Yeah, took a look at Warren and the case you mentioned. Looks to me like he should have went to trial because I think he would have gotten acquitted. I guess he pleaded guilty cause he was told he'd just get a $3000 fine if he testified against the others so he didn't want to risk it. Apparently he thought what the company was doing wasn't right but the executives told him it was legal so I guess he didn't pursue it any further. His involvement sounds very minimal but unfortunately it ruined his reputation as now he's technically a "convicted felon".
Makes me wonder why he was hired by Scott since all Scott's videos talk about surrounding yourself with "pedigreed" executives and quality "C" level executives, etc.
Still with that said we don't even know what role Warren is even going to play, these guys might just be facilitating the reverse merger with another company.
Obviously we don't know the whole story but Scott had to know that investors would do DD as it's something he mentioned many times in his videos so why even put Warren on there as secretary, seems foolish..??
May 10 (Bloomberg) -- Three ex-brokers at Citigroup Inc., Merrill Lynch & Co. and Lehman Brothers Holdings Inc., on trial for selling access to trades over internal ``squawk boxes,'' were acquitted of fraud along with four day-trading executives.
A jury of six men and six women deliberated five days before returning a verdict. Ex-Merrill broker Timothy O'Connell was found guilty of witness tampering and making a false statement, the only convictions out of 40 charges filed. U.S. District Judge I. Leo Glasser in Brooklyn, New York, federal court declared a mistrial on one conspiracy count after the jury deadlocked.
Today's verdict is the latest defeat of U.S. efforts to prosecute ``front running,'' trading ahead of large orders that sharply change stock prices. In February, a federal judge in Manhattan threw out the conviction of an ex-New York Stock Exchange specialist for making trades for his firm before customer orders. Of 15 specialists charged with fraud in April 2005, two were acquitted, and seven had their charges dropped.
``The government overreached,'' defense attorney Jeffrey Hoffman said of today's verdict. They ``charged the defendants with activities that had never previously been the basis for criminal charges.''
A.B. Watley shares more than doubled on news of today's verdict, reaching 7 cents in over-the-counter trading.
Access
Prosecutors claimed the brokers conspired to give traders at New York-based A.B. Watley Group Inc. access to company intercoms in exchange for cash and commissions. U.S. Securities and Exchange Commission official Mark Schonfeld said today the agency will proceed with related civil suits against the defendants filed in 2005 and 2006 that were on hold pending the end of the trial.
Brooklyn U.S. Attorney Roslynn Mauskopf alleged it was illegal for traders to profit by listening in on large orders broadcast internally at the securities firms. The traders bought or sold stock ahead of the orders in anticipation of share-price swings, prosecutors claimed.
``The case never should have been brought,'' defense lawyer Stephen Scaring said. ``What was going on with squawk boxes was generally considered acceptable and if the government wanted to change the rules they should have notified everybody.''
Mauskopf spokesman Robert Nardoza wouldn't comment. The government must decide whether to retry or dismiss the conspiracy charge against the seven defendants.
SEC Suits
The SEC prevailed in some previous civil cases against individuals found not guilty of related criminal charges. Last November, the regulator won a securities fraud case against former Adelphia Communications Corp. Assistant Treasurer Michael Mulcahey after he was acquitted of 23 counts stemming from an accounting fraud at the cable-television operator.
Watley day-traders listened to squawk boxes over the telephone to hear proposed institutional or block trades.
At trial, O'Connell, 42, was heard by jurors on tape trying to convince assistant Irene Santiago to lie to authorities about him resting his telephone near his squawk box.
``I'm just gonna tell the truth, Tim,'' jurors heard Santiago say in excerpts from one conversation. ``They're threatening me. I have to.''
``Oh, my God,'' O'Connell could be heard saying.
Jurors Unclear
Jurors said in interviews that they didn't know how squawk boxes were supposed to be used.
``We were unclear as to industry practice regarding the squawk box, regarding the usage of the information that came from the squawk box,'' said juror Janine Bonura, 41, a teacher from New Hyde Park, New York.
Bonura also said prosecutors failed to prove the orders broadcast over the boxes led to traders buying and selling. ``Could they have gotten that from any other source?'' she wondered.
Jury foreman James Hiatt, 24, a construction van driver, said he thought the scheme took place. Prosecutors failed to prove their case, he said.
``I didn't believe the witnesses and the charts,'' he said, referring to charts showing trades that were allegedly examples of front-running. ``They were unable to prove people bought because of a squawk.''
Hiatt said he thought it was ``very shady'' for brokers to place telephones on the boxes for the day traders to hear. He didn't vote for convict them because the brokerage firms didn't give them instructions on how to use the box.
15-Year Sentence
O'Connell faces a possible 15-year sentence. While witness tampering carries a maximum 10-year term, he also was found guilty of making a false statement when he told investigators he never provided access to the squawk box. That count carries a term of up to five years imprisonment.
``I'm glad he was found not guilty of everything else,'' said his attorney Mildred Whalen.
The defendants were found not guilty of 20 securities fraud counts, one count of conspiracy to violate the travel act, 11 travel act violations, conspiracy to commit witness tampering and four false statements.
Stephen Johnson, an analyst for the Securities and Exchange Commission, testified that Watley traders traded at least 400 times just minutes before a block order. Prosecutors said the trades generated more than $600,000 in profits at Watley between January 2002 and February 2004.
The traders allegedly bought or sold short stocks including Citigroup, Pfizer Inc., Liberty Media Corp., Wells Fargo & Co. and Home Depot Inc.
Acquitted
Acquitted of the fraud counts were O'Connell, who worked at Merrill's Garden City, New York-office, ex-broker Kenneth Mahaffy Jr., 51, who worked at Merrill's office in Garden City and Citigroup's office in Melville, New York; and David Ghysels, 49, formerly of Lehman's office in Palm Beach, Florida.
The jury also acquitted on the fraud charges A.B. Watley President Robert Malin, 42, Compliance Director Linus Nwaigwe, 49, former Chief Operating Officer Michael Picone, 41, and Keevin Leonard, 46, a former supervisor of proprietary trading.
During the trial, John Jay Amore, Watley's former chief executive officer and chief prosecution witness, testified he introduced the alleged scheme when he was hired in 2002 as a $20,000-per-month consultant.
$4,000 in 45 Seconds
Amore told the jury he showed Watley president Malin how the boxes worked by making at least $4,000 in ``maybe 45 seconds'' on an overheard block trade in Walt Disney Co. stock.
Amore, who became CEO later that year, testified the front- running ``took an insolvent firm and brought it to life.''
He pleaded guilty in 2004 to conspiracy to commit securities fraud for a series of trading schemes at several firms, including Watley. Amore also pleaded guilty to mail fraud for making misrepresentations at his now-defunct hedge fund, Amore Capital Group. He faces up to 30 years in prison.
Jurors said they struggled with Amore's credibility. ``He keeps changing his story,'' juror Judeline LeConte Mettellus, 34, a nurse.
`A Pawn'
During their summations, defense attorneys argued their clients were victims of Amore, not accomplices. Malin's attorney Roland Riopelle said his client was ``a pawn'' in Amore's ``chess game of fraud.''
Prosecutors said the brokers would leave their telephone receivers on their institutional squawk boxes during the trading day for the New York Stock Exchange. Voices from the boxes were piped into Watley's Wall Street offices, where day traders would eavesdrop on pending orders.
If the day traders heard a large order to buy, they would purchase shares of the company before the order, assuming the price would go up, prosecutors claimed. If there was an order to sell, they allegedly would sell the stock short, anticipating it would go down.
Often, prosecutors alleged, traders would place what are known as ``wash trades'' with the brokers, pre-arranged purchases and sales of the same stock made solely to generate commissions.
Heart of the Case
At the heart of the case was the question of whether providing access to squawk boxes was improper. Prosecutors said the orders were broadcast over the intercoms to fill the other side of the trade, not to trade ahead of it. News of the pending orders was confidential information, they claimed.
Defense attorneys argued the boxes were given out to brokers indiscriminately and didn't come with instructions.
Warren Fellus, a former day trader who joined Watley in 2002, testified for the government that his firm's executives assured him trading after eavesdropping on squawk boxes was legal. He pleaded guilty in 2005 to conspiracy to commit securities fraud.
Mahaffy took the stand in his own defense. He said he generally kept the telephone on his shoulder and relayed information to clients. He denied placing his phone on the squawk box for clients to eavesdrop, though he said he believed they ``overheard some things'' and were entitled to the information.
No Idea
Mahaffy said he had no idea dozens of Watley traders were trading off what they heard.
Leonard, who supervised Watley's approximately 100 day- traders, also testified on his own behalf. He said Amore assured him the squawk boxes were ``100 percent legit.''
Nwaigwe, a former NASD examiner, was also acquitted of lying to federal authorities for saying he never heard the term ``squawk box'' in connection with trading at Watley. He said he first heard the term in a subpoena from the SEC.
Picone also was found not guilty of making a false statement for allegedly telling the SEC he approved a $1,000 expense payment to bring a broker at Merrill to an adult entertainment establishment when the money was meant to pay a broker for access to the squawk box, prosecutors claimed.
Mahaffy also was acquitted of making a false statement.
New York-based Merrill is a passive minority investor in Bloomberg LP, the parent of Bloomberg News.
A.B. Watley stock rose 1.5 cents to 3.6 cents at 3:55 p.m. in over-the-counter trading.
The case is: U.S. v Mahaffy, 05-0613, U.S. District Court, Eastern District of New York (Brooklyn).
To contact the reporter on this story: Karen Freifeld in Brooklyn federal court at kfreifeld@bloomberg.net.
To contact the editor responsible for this story: Patrick Oster at poster@bloomberg.net and; Erik Schatzker at eschatzker@bloomberg.net.
