U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19335 / August 15, 2005
SECURITIES AND EXCHANGE COMMISSION v. JOHN J. AMORE, RALPH D. CASBARRO, DAVID G. GHYSELS, JR., KENNETH E. MAHAFFY, JR., AND TIMOTHY J. O'CONNELL, CV-053885 (GLASSER) (E.D.N.Y.)
The Securities and Exchange Commission ("Commission") today filed a civil injunctive action in the United States District Court for the Eastern District of New York against four brokers and the former chief executive officer of A.B. Watley Group, Inc. ("A.B. Watley Group"). The Commission's complaint alleges that Ralph D. Casbarro ("Casbarro"), a former broker at Citigroup Global Markets, Inc. ("Citigroup"), David G. Ghysels, Jr. ("Ghysels"), a former broker at Lehman Brothers, Inc. ("Lehman"), Kenneth E. Mahaffy, Jr. ("Mahaffy"), a former broker at Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch") and Citigroup, and Timothy J. O'Connell ("O'Connell"), a former broker at Merrill Lynch, secretly provided John J. Amore ("Amore") with confidential information on unexecuted customer orders. These orders were transmitted over Citigroup's, Lehman's, and Merrill Lynch's squawk boxes, audio broadcast systems that transmit information on block orders that customers send to Citigroup, Lehman, and Merrill Lynch for execution. Amore then directed day traders at A.B. Watley, Inc. ("A.B. Watley"), a broker-dealer subsidiary of A.B. Watley Group, to trade ahead of these block orders. Amore engaged in this fraudulent scheme from at least June 2002 through September 2003.
The Commission filed its complaint against:
The complaint alleges the following:
Between at least June 2002 through September 2003, Amore, Casbarro, Ghysels, Mahaffy, and O'Connell participated in a fraudulent scheme to profit by trading ahead of customer orders broadcast over squawk boxes at Citigroup, Lehman, and Merrill Lynch. Traders at Citigroup, Lehman, and Merrill Lynch routinely announced block orders over their firms' squawk boxes, which broadcasted this information to brokers in the retail branch systems of Citigroup, Lehman, and Merrill Lynch respectively. Casbarro, Ghysels, Mahaffy, and O'Connell routinely placed an open phone line connected to A.B. Watley's headquarters next to their employers' squawk boxes.
The traders at A.B. Watley subsequently traded ahead of the block orders based on the confidential information transmitted by Casbarro, Ghysels, Mahaffy and O'Connell. On more than 400 occasions, the day traders at A.B. Watley used the information obtained from Casbarro, Ghysels, Mahaffy and O'Connell to trade ahead of customer block orders. Amore and the day traders at A.B. Watley made more than $650,000 in gross profit from this scheme. Amore and the day traders compensated Casbarro, Ghysels, Mahaffy and O'Connell for the confidential order flow information through gross commissions totaling approximately $290,000. Additionally, Amore, directly or through his subordinates, made cash payments to Casbarro and Mahaffy.
The Commission charges Amore, Casbarro, Ghysels, Mahaffy, and O'Connell with violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Commission seeks a permanent injunction against future violations of these provisions, disgorgement plus prejudgment interest, and civil penalties.