...todays WSJ story illustrates the hazards of the business ... the main hazard IMHO being the character of many of the people. A good lesson as to what can happen if you hire people that you have not checked out ...or if you just dont care who you hire .....
Preamble Elite Trader threads: http://www.elitetrader.com/vb/showthread.php?s=&threadid=46315 http://www.elitetrader.com/vb/showthread.php?s=&threadid=46442 http://www.elitetrader.com/vb/showthread.php?s=&threadid=52851 http://www.elitetrader.com/vb/showthread.php?s=&threadid=53884 WSJ follow-up article provides some of the real chatter behind this Wall Street squawk-box front-running saga: Horn of Plenty How Day Traders Turned Squawk-Box Chatter Into Profits SEC Says Four Brokers Left Phone Lines Open for Them; $8,700 in Just 12 Minutes Mr. Amore's Business Odyssey By AARON LUCCHETTI and KARA SCANNELL Staff Reporters of THE WALL STREET JOURNAL August 23, 2005 In mid-2002, John J. Amore met in a sparsely decorated office in lower Manhattan with three traders he wanted to join A.B. Watley Inc., the small brokerage firm where he worked. The stock market was falling sharply, but Mr. Amore outlined a surefire way for the recruits to earn profits at Watley, the traders recall: electronically eavesdropping on traders at major Wall Street firms and rapidly buying and selling based on what the big boys were about to do. A large purchase of, say, Goodrich Corp. stock executed by Citigroup Inc.'s brokerage unit would almost certainly push the price up. Anybody with advance word could buy Goodrich stock first -- and sell for a quick profit once the Citigroup trade was finished. "It scared me," recalls one of the recruits, John Sweeney, a former Morgan Stanley employee who declined to join Watley. Mr. Amore and his Watley "day traders" made at least $650,000 off hundreds of such trades in 2002 and 2003, the authorities say. They relied on branch-office brokers at top firms with access to valuable secrets. The brokers allegedly left phones off the hook to allow Watley traders to listen in on in-house stock orders piped over a kind of speaker phone known as a "squawk box." Last week, federal prosecutors in Brooklyn announced the indictment of four such brokers, and the Securities and Exchange Commission sued them and Mr. Amore. Mr. Amore grossed a further $300,000-plus on a similar, earlier scheme involving a New York Stock Exchange floor clerk indicted in March, people familiar with the matter say. The four brokers and the floor clerk have pleaded not guilty. Mr. Amore is cooperating with authorities in a bid for leniency in an unrelated fraud case -- and any potential charges that might arise from the investigation. He declined to comment for this article through his lawyer, Nelson Boxer at Alston & Bird. Mr. Amore's alleged scheme is an extreme example of an age-old Wall Street problem. Big institutional investors live in fear that their orders will leak out, allowing others to profit by grabbing the best stock prices for themselves before the orders are filled. Then the institutions have to buy shares for more or sell them for less. The ultimate victims: mutual-fund investors, pension-fund beneficiaries and others whose savings are overseen by Wall Street's biggest trading customers. "It makes me sick," says Andrew Brooks, head of stock trading at mutual-fund giant T. Rowe Price, of the case. There could be more fallout to come: The SEC has subpoenaed Wall Street firms in an investigation into whether they adequately protected their customers' orders, people familiar with the matter say. After attending a state college on Long Island without graduating, Mr. Amore, now 42 years old, bounced from job to job. He got his start on Wall Street in the early 1980s at Bear Stearns, earning $155 a week in a junior-level position, according to a deposition he gave in a 2000 lawsuit. He went on to work in banking in Los Angeles, commodities trading in Chicago and for a hedge fund in New York, the deposition says. In 1996, he launched his own hedge fund, Amore Capital Group. He borrowed some money from an acquaintance of his wife to wine and dine prospective investors, according to a person familiar with the matter. He told people he had attended Syracuse University and even celebrated its basketball victories, according to a former colleague. Syracuse has no record of him attending. He had a rumpled appearance, going to one meeting in a suit and white socks, according to someone who knew him at the time. His office was above a fast-food joint in Queens. He talked a good game, though, and raised enough to manage more than $6 million as of the end of 1999, according to the hedge fund's annual report. He and his wife bought a house in Manhasset on Long Island that they sold last October for $1.5 million, according to local property records. He also traveled to Europe, people who knew him say, and set up a better office in Great Neck, the New York suburb that was the real-life setting for "The Great Gatsby." His strategy was simple: trade often to make little gains here and there -- and few long-term bets. He believed in hitting "singles and doubles," as he put it at an investment conference to attract new clients at Manhattan's Plaza Hotel, an attendee says. But the strategy didn't work well: Some investors were left with pennies on the dollar after he shut the fund in the spring of 2000. Later, some of his clients accused him in a civil suit of inflating returns. One says in an interview that he got all his money back only by threatening to kill Mr. Amore. The civil suit was eventually settled, but a federal grand jury in July 2004 accused Mr. Amore in a criminal indictment of borrowing $3.2 million from the hedge fund and then covering up the fact that he hadn't repaid it. He pleaded not guilty to the charge. (continued below)
Better Luck Long before being charged in that case, Mr. Amore began working with a day-trading firm called Andover Brokerage LLC that had offices in his hedge fund's Great Neck building. He had better luck there -- thanks to information provided by a New York Stock Exchange clerk, Frank Furino, now 49, people familiar with the matter say. Andover was bought by SunGard Data Systems Inc. A spokesman for that firm declined to comment. Mr. Furino worked for Lawrence Helfant LLC, a Big Board brokerage firm that executed floor trades. In March, a federal grand jury indicted Mr. Furino and the SEC sued him in U.S. District Court in Brooklyn, referring to Mr. Amore as "the Day Trader" without naming him. Mr. Furino regularly called the trader about big orders Helfant was about to execute, the SEC's suit says. On Jan. 9, 2001, for example, Mr. Furino told the day trader that a customer was about to buy lots of Computer Sciences Corp. shares, the SEC says. The day trader quickly bought 20,000 shares at an average price of $53.07 -- and sold them at $53.50, just as the Helfant customer was buying 65,900 shares, the SEC says. The profit: $8,562. The day trader's activities hurt Helfant customers, according to the SEC. In one case, a Helfant customer paid $29.64 a share for McDonald's Corp. stock on Feb. 15, 2001 -- 23 cents more than the day trader paid on average for 31,500 shares over the previous six minutes, the SEC says. The SEC says the day trader made at least 58 such trades, grossing more than $300,000 from August 2000 until December 2001. In return, Mr. Furino got cash payments of $2,500 to $10,000 a month, the SEC says. Mr. Furino's employment was terminated in February, and he pleaded not guilty. Douglas Burns, Mr. Furino's lawyer, says he's in plea negotiations on behalf of his client with the government. "We deny the allegations," in the SEC case, he adds. A spokesman for brokerage firm Jefferies Group Inc., which bought Helfant in late 2001, declined to comment. By January 2002, Mr. Amore had approached A.B. Watley, a brokerage firm that had fallen on hard times. Founded in 1958, Watley was purchased in the 1990s by a group led by two brothers, Robert and Steven Malin. They shifted it from traditional brokerage work to a base for day traders. Day trading was a popular strategy among small-time investors in the late 1990s boom that involved rapid electronic trading in and out of volatile technology stocks. The brothers launched an initial public offering of stock in the parent company, now known as A.B. Watley Group Inc., in 1999 and moved into a little over three floors in the Trump Building on Wall Street. Then the tech bubble burst. By 2001, the firm saw its share price drop more than 80%. It had a loss of $25 million that year and was using only about 3,000 square feet of its 50,000 square feet of office space. Mr. Amore promised a new beginning. He told Robert Malin that he could build the firm an institutional trading division based on his previous Wall Street experience, contacts and relationships, Mr. Malin recalled. Mr. Amore came to the firm in January of 2002 and soon oversaw the division that traded with the firm's money. He was later promoted to chief executive. Mr. Malin, currently president of A.B. Watley, says that the firm and its principals have been cooperating with investigators on the squawk-box case. A lawyer for Watley says the firm and its current executives were unaware of any improprieties in the relationships Mr. Amore may have had with brokers. By mid-2002, Mr. Amore had Wall Street wired -- literally, authorities say. The keys to his strategy, according to court papers, were intercom systems used by Wall Street firms to disseminate big orders internally so brokers could match buyers with sellers. Such information, broadcast over desktop "squawk boxes" -- glorified speaker phones that generally sit underneath Wall Street traders' computer monitors -- isn't supposed to be shared with outsiders. "Orders may not be disclosed to any other person for other than bona fide business purposes," says Merrill Lynch & Co.'s policy manual. Starting that summer, Watley paid four brokers from three big firms -- Merrill Lynch, Citigroup and Lehman Brothers Holdings Inc. -- via sham commissions or cash to regularly leave phones off their hooks near squawk boxes, usually for entire days, so the day traders could listen to the chatter with fingers poised over their trading computers' keyboards, the authorities say. Meanwhile, Mr. Amore recruited traders to take advantage of the gusher of valuable information. He and a colleague interviewed Mr. Sweeney and two other recruits for 30 minutes in June 2002, the traders say, telling them that hedge funds regularly relied on information about big pending trades. "The only traders that make any money are the ones that see the flow" of such data, one of the Watley executives said, according to Mr. Sweeney, who is still in the securities industry outside New York. Mr. Sweeney says he spent a week there, observing the rows of mostly men in their 20s and 30s as they listened to multiple firms' chatter over speakerphones. Every few seconds, he recalls, an order would crackle over one of the lines. Traders who couldn't hear would sometimes scream at others to shut up, according to one of the recruits. The room would fall silent so the traders could hear every word, followed by feverish click-clacking as the traders typed orders on their keyboards. Then they watched the electronic ticker tape on a screen for the squawk-box order to be executed. When it did, they'd click-clack again to take their profits. "If you listened to it, you made money," says a former Watley employee who worked there for several months. "You'd have to be a moron not to." As explained to Mr. Sweeney, on a good day, a trader could net a few thousand dollars. He decided against joining, he says, because it all looked like illegal "front running." Mr. Amore eventually assembled a team of about 100 traders, associates recall. A day trader at a competing firm recalls Mr. Amore saying that his traders bought and sold more than 100 million shares a month. Some had bounced around various trading shops before finding Mr. Amore. Regulatory records show that others previously worked at a Westchester County carpet cleaner, a Netcong, N.J., pizza parlor and a New York City Banana Republic. (continued below)
First Nine Months During his first nine months at Watley, Mr. Amore made $155,766 in salary and was granted stock options in the company, according to regulatory filings. He signed an employment contract to make $250,000 in salary starting in October 2002. Around the same time, he celebrated his 40th birthday with a party in his family's backyard. The theme, according to one attendee: casino night, with blackjack tables and roulette wheels. At the office, Mr. Amore worked long days, sometimes 7 a.m. to 8 p.m., a former colleague says. He once invited all the traders' children to the office for "carnival day." Traders used various strategies at Watley, but several say Mr. Amore's preferences were clear. One trader recalls Mr. Amore walking around the floor instructing employees to "trade only on what the boxes were saying" because anything else was "speculation" that "wouldn't work." Squawk-box access provided by two Merrill brokers who worked together in that firm's Garden City, N.Y., office generated the most profits for Watley, the authorities say. One broker, Timothy O'Connell, now 40, had worked in the office since 1997. The Long Island native was active in Little League baseball near his home in Carle Place and twice ran unsuccessfully for elective office in the heavily Democratic area as a Republican, touting his financial expertise, according to newspaper accounts. The other was Kenneth Mahaffy, now 50, another Long Islander who had joined the office in 1997 after working at a day-trading firm where one of Mr. Amore's top deputies also had worked. Mr. O'Connell's office had two phone lines, authorities say in court papers. He used one to conduct business. He instructed Irene Santiago, an assistant he shared with Mr. Mahaffy, to use the other to pipe order chatter to Watley day traders by leaving the phone off the hook near a squawk box, the authorities say. The assistant routinely set up calls early in the morning and disconnected them at the end of the trading day, they say. Between them, Messrs. O'Connell and Mahaffy generated at least $500,000 in gross profits for the Watley traders, who listened to Merrill orders as they traded Pfizer Inc., Liberty Media Corp., American Financial Group Inc. and First Data Corp., the authorities say. Over the course of 12 minutes on the afternoon of Oct. 16, 2002, the traders made $8,700 shorting Citigroup stock -- betting that it would decline -- just after hearing from Mr. Mahaffy's squawk box that Merrill would execute a big sell order on the shares, the SEC says. Four months later, Mr. Mahaffy left Merrill -- to join Citigroup's Melville, N.Y., office, where the scheme continued, the SEC says. By then, another Citigroup broker, Ralph Casbarro, now 43, of Bayside, N.Y., already had been aiding the day traders for at least eight months from his firm's Manhattan offices, the authorities say. He provided the Watley traders with perhaps their biggest single take: Shortly before 9:52 a.m. on July 24, 2002, a Citigroup trader could be heard announcing an order to sell Noble Corp. stock. Over the next three minutes, more than 10 Watley day traders shorted at least 36,000 Noble shares -- selling borrowed stock in hopes of replacing the shares later with cheaper ones and pocketing the difference -- at about $28.63 each. Over the next two minutes, Citigroup executed a sell order for the stock as the price dropped, and Watley traders scooped up 36,000 shares at about $28.10 each -- a 53-cents-a-share profit for a total gain of at least $19,000, the SEC says. By August 2002, Mr. Amore had a fourth broker on board -- David Ghysels, 47, who worked in Lehman's Palm Beach, Fla., office. Watley made 400 trades based on squawk-box chatter piped in by the four brokers, generating at least $650,000 in gross profits, the SEC says. That's not including another day-trading firm not named in the SEC complaint that received access to squawk-box chatter from Messrs. O'Connell and Mahaffy. At the time, compensation for Wall Street's low-level brokers was in a post-bubble slump, because the value of shares traded had plummeted. In 2002, the average broker earned $150,828, down 24.5% from 2000, the Securities Industry Association says. These four brokers' salaries were supplemented by bribes disguised as commissions generated by bogus "wash trades," authorities say. In all, the Watley traders generated $310,000 in commissions for the four brokers, not counting cash payments to Messrs. Casbarro and Mahaffy, the SEC suit says. A typical payoff worked like this, the indictment alleges: On May 15, 2003, Watley had Mr. Casbarro buy 40,000 shares of Solectron Corp. for about $3.75 a share through the firm's Citigroup account, generating a $2,400 "commission/bribe" for the broker. That same day, Watley had Mr. O'Connell sell the same number of Solectron shares at about the same price through the firm's Merrill account, generating another $2,400 for that broker. Things unraveled in mid-2003, amid a wave of allegations between Watley and Mr. Amore. Watley's other executives became suspicious of Mr. Amore, firing him and filing a civil suit in state court in Manhattan. The company alleged he lost $2.9 million on a client's account in a matter of hours, hid trading losses, siphoned off firm funds for his own use and threatened to "blackmail" a colleague with surreptitious tape recordings of conversations. Mr. Amore denied the allegations and countersued. After his firing, Mr. Amore took about two dozen traders with him to E*Trade Financial Corp. But that job lasted only about two months. The firm told him not to trade on squawk-box chatter, and his traders didn't generate much revenue, says a person briefed on the matter. An E*Trade spokeswoman declined to comment yesterday. Meanwhile, someone at the National Association of Securities Dealers heard that Merrill squawk-box orders were being leaked and informed the firm, says a person familiar with the matter. In late 2003, the firm separately had received a similar tip, investigated it and by early 2004, restricted brokers' access to the squawk-box information, says a Merrill spokesman. By May 2004, separate federal probes by prosecutors in the Eastern District of New York, based in Brooklyn, were under way into the squawk-box allegations and into Mr. Amore's hedge-fund activities. Mr. Amore was indicted in July on 18 counts of fraud in the hedge-fund case. He pleaded not guilty. Late last year, he began cooperating with authorities on the squawk-box case in a bid for leniency, providing details about the brokers involved, people familiar with the matter say. Decision to Cooperate As the probe heated up last year, Mr. O'Connell and a Merrill compliance officer, Benjamin Grimaldi, denied knowing anything about front-running at the firm in interviews with U.S. Postal Inspection Service investigators assigned to the case, prosecutors say. They also persuaded Ms. Santiago, the assistant, to lie to the grand jury, prosecutors say. Ms. Santiago later decided to cooperate and recorded incriminating phone conversations with Mr. O'Connell, authorities say. Mr. O'Connell left Merrill in February and was charged with obstruction in April. He pleaded not guilty to the charge. He has told friends that he's now a part-owner and manager of a Long Island bar. His lawyer didn't return phone calls. Merrill in July fired Mr. Grimaldi, who pleaded guilty on July 28 to a witness-tampering conspiracy charge. Ms. Santiago resigned from Merrill earlier this year and pleaded guilty on Aug. 4 to conspiracy to obstruct justice. She is awaiting sentencing. Mr. Grimaldi declined to comment and his lawyer didn't return calls seeking comment. Ms. Santiago's lawyer declined to comment. Citigroup fired Mr. Casbarro in March. He worked for First Montauk Securities until earlier this month. He couldn't be reached for comment. According to an NASD filing, Mr. Casbarro contends his conduct was "common practice" and "management knew and gave [its] blessing." Citigroup declined to comment on that. Citigroup also fired Mr. Mahaffy, in June. His lawyer didn't return phone calls seeking comment. Mr. Ghysels left Lehman in March 2003 and then worked for Citigroup's Boca Raton, Fla., office until May 2005, the SEC says. His lawyer, Jeff Hoffman, says, "The government alleges this [squawk-box chatter] was material nonpublic information, and we believe it will be shown that was not the case." Prosecutors last week unsealed a federal grand jury's 40-count indictment alleging securities fraud and bribery among other things against the four brokers. The charges carry prison sentences of up to 25 years each. The SEC has notified Watley, which continues to operate a brokerage firm called A.B. Watley Direct, that it may face civil charges. Authorities say their probe is continuing. Lehman, Citigroup and Merrill say they are cooperating. Write to Aaron Lucchetti at aaron.lucchetti@wsj.com1 and Kara Scannell at kara.scannell@wsj.com2 http://online.wsj.com/article/0,,SB112476138184420255,00.html
well, in my book, this is petty larceny. what the enron traders did, or what ATT did by slamming its customers, is something to scream about.
thanks NYSE_Pro for your bringing these articles to all our attention..... clearly you're not a fan of either him or those in Great Neck, Long Island New York. Isn't that where they filmed or claimed the film was based? Something about Boiler Rooms and such? Seems too many of these desperte souls pass themselves off as viable business contacts....