'Squawk' Probe Figure Spoke of Broker Access
Monday March 14, 4:09 pm ET
By Matthew Goldstein, Senior Writer
TheStreet.com
An emerging figure in the SEC's probe of illegal Wall Street stock tips once tried to recruit traders by claiming he had access to Merrill Lynch's (NYSE:MER - News) internal communications system, sources say.
Former AB Watley (OTC BB:ABWG.OB - News) CEO John Amore allegedly boasted that he connected datytraders at his small New York firm into Merrill Lynch's "squawk box" system in order to gather information about pending block trades, say people familiar with Amore.
The former Watley executive often mentioned his supposed access to Merrill's internal communication system as a recruiting tool in trying to lure other traders to Watley, these people say.
To a lesser degree, sources say, Amore made similar claims about his access to Lehman Brothers' (NYSE:LEH - News) squawk box.
No source had knowledge about whether Amore's claims were true. A Merrill Lynch spokesman declined to comment on the allegation. A Lehman spokeswoman also declined to comment.
Amore, indicted last summer by federal prosecutors on an unrelated securities matter, has surfaced as a key figure in the eight-month investigation into the leaking of illegal stock tips to daytraders and others.
In the investigation, federal prosecutors and the Securities and Exchange Commission are looking into allegations that daytrading firms and hedge funds paid brokers to secure unauthorized access to internal brokerage calls.
The investigation, which began last summer, is focusing on allegations that the brokers received kickbacks or other compensation such as order flow in return for connecting traders to the calls.
Getting a tip about a block trade, a single trade of 10,000 or more shares, can be advantageous to traders trying to cash in on sudden price movement in a stock. Such tips could have permitted daytraders to engage in front-running, an illegal practice in which a person buys or sell shares ahead of a trade he suspects will move a stock's price.
TheStreet.com reported previously that people familiar with Watley said daytraders in the firm's proprietary operation had access to squawk box communications coming from several brokerage houses. Watley shut down its proprietary trading operation early last year, soon after the firm fired Amore in September 2003.
Last week, TheStreet.com reported that Lehman was one of the Wall Street firms contacted by the SEC in conjunction with the Watley investigation, according to people familiar with the inquiry.
On Monday The Wall Street Journal reported that Amore is believed to be cooperating with the federal investigation, possibly in the hopes of lighter penalty in the pending securities fraud case against him.
In that matter, reported last Friday by TheStreet.com, federal prosecutors in Brooklyn charged Amore with defrauding investors in a small hedge fund he managed, Amore Capital Group. The 18-count indictment, filed by prosecutors in the Eastern District of New York, charges that Amore lied to his investors about his education and his employment history. He also allegedly falsified records concerning a $3.2 million personal loan taken from the fund and created "fictitious quarterly statements" that were mailed to investors.
Amore pleaded not guilty to the charges. His attorney, Nelson Boxer, declined to comment.
The squawk box inquiry, meanwhile, is part of a broad investigation by prosecutors and the SEC into the misuse of confidential trading information. Last week, in what's believed to be a related action, federal authorities filed criminal and civil charges against Frank Furino, a former New York Stock Exchange floor clerk, for allegedly facilitating an illegal front-running scheme.
The authorities contend that Furino passed on tips about upcoming big block trades to a unnamed daytrader in return for cash payments. The scheme generated $300,000 in illegal profits from trades placed from August 2001 through December 2001.
The daytrader in the Furino investigation, identified only as an unindicted co-conspirator, was based in the former Great Neck, N.Y., office of Andover Brokerage, a daytrading firm that's now called Assent.
Peter Discenza, an executive with Assent, which is based in Hoboken, N.J., said the firm has nothing to do with Andover. He said Assent purchased the assets of Andover and has a different management team. However, a number of people working and trading at Assent were previously with Andover.
People familiar with Amore said the former Watley executive had a number of ties to Andover's Great Neck office. Amore, whose last known address was in the neighboring Long Island community of Plandome, N.Y., traded stocks out of the Andover office in Great Neck before joining Watley in September 2002.
Amore's hedge fund was located in the same Great Neck building that had housed Andover's office. The hedge fund employed only a handful of employees, of whom one had been a former trader in Andover's Great Neck office. |
