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Banks

UPDATE 3-US jury finds brokers guilty in 'squawk box' trial

 * Six guilty in conspiracy to misuse trading devices
 * Ex-brokers shared confidential information with traders
 (Adds prosecutor's comment, sentencing date, other details)
 NEW YORK, April 22 (Reuters) - 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 C.N and now bankrupt Lehman Brothers
Holdings Inc LEHMQ.PK of generating millions of dollars in
illegal profits. Merrill has been owned by Bank of America
BAC.N 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)


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