Eavesdroppers Take Stock

NY - A federal judge on Friday denied a motion by a group of ex-securities brokers and former A.B. Watley Inc. executives to dismiss a criminal case against them in an alleged scheme to misuse brokerage firm "squawk" boxes.

Prosecutors have alleged that three ex-brokers placed open telephone lines next to the internal speaker systems at their companies so that Watley day traders could secretly eavesdrop on block orders by institutional clients. (more)

1/13/09 - UPDATE - The U.S. dropped its sole charge against a former A.B. Watley Group Inc. executive who was set to be retried next month in a case where day traders were accused of eavesdropping on institutional trades using “squawk boxes.”

Michael Picone, Watley’s former chief operating officer, agreed to cooperate with prosecutors, Assistant U.S. Attorney Jonathan Green said today. In return, the U.S. dropped the count of conspiracy to commit securities fraud, a crime punishable by as long as 25 years in prison.

“In exchange for the defendant’s cooperation, the government agrees to dismiss the charge against him,” Green told U.S. District Judge Jack B. Weinstein. (more)

Electronic Surveillance Detection Audits

Not having an Electronic Surveillance Detection Audit program can cripple your company.

Just ask...
• Société Générale, who last January, revealed that unauthorised dealing by Jérôme Kerviel, a futures trader in Paris, resulted in losses of €4.9 billion ($6.6 billion) for the French bank. This is the biggest rogue trading scandal in history. (more)

Tool of choice: A tiny cell phone, using text messaging!

Preventable? Yes.

How? We would have pointed out this vulnerability during a regular Electronic Surveillance Detection Audit (TSCM sweep). The solution... a special 24/7 radio-monitoring system. The system would have nailed the very first unauthorized text message from the trading floor. Via computerized triangulation mapping, a big red dot would have popped up, right over Mr. Kerviel's desk – indicating he was the culprit!

Total Solution Cost? Less than .000016 % of this loss (or about $100,000.00).
Status: Until a solution is put into place, this type of loss can happen again! Smart money protects... before the problem occurs. They use Electronic Surveillance Detection Audits to uncover hidden vulnerabilities.

Other cases, this year, where Electronic Surveillance Detection Audits could have prevented the loss...
• Jim Damman thought somebody was looking over his shoulder for months. Little did he know that his office was routinely broken into and more than 150-million dollars worth of trade secrets were stolen without a visible trace according to a federal lawsuit. The President of Exel Transportation Services says his suspicion grew so strong that he took the unusual step of sweeping the company's Addison offices for electronic bugs. (Had the "step" not been "unusual" the problem would not have turned into a 150-million dollar loss.)
Preventable? Yes.

• The BexarMet Board of Directors voted Thursday evening to terminate the contract of its embattled general manager, Gil Olivares. Olivares was suspended in August days after a Bexar County jury indicted him on charges of official oppression and illegal wiretapping, among other charges. (The cost: of attorney's fees, lost productivity and employee moral easily makes periodic inspections a no-brainer.)
Preventable? Yes.

• A federal judge denied a motion by a group of ex-securities brokers and former A.B. Watley Inc. executives to dismiss a criminal case against them in an alleged scheme to misuse brokerage firm "squawk" boxes. Prosecutors have alleged that three ex-brokers placed open telephone lines next to the internal speaker systems at their companies so that Watley day traders could secretly eavesdrop on block orders by institutional clients. (The costs here include: stockholder suits, public relations, company attorney fees, lost productivity and employee.)
Preventable? Yes.

• A state lawmaker said Thursday night he attached a digital recorder under an aide’s desk as “just a prank,”... (he) recalled setting the device up on Tuesday, said he forgot about putting the recorder there until Thursday. (Just having an Electronic Surveillance Detection Audit program would have been a deterrent in this case.)
Preventable? Yes.

• Bechtel National has taken disciplinary action against four managers at the Hanford vitrification plant for reportedly eavesdropping on a meeting between safety representatives and the Department of Energy.Preventable? Yes.

• 15 new GSM bugs - eavesdropping devices which can be listened to from anywhere in the world by simply dialing their cell phone number - are featured here, and on ebay here.
(Letting you know about new problems like this is the job of your Electronic Surveillance Detection Audit consultant. This person should also have solutions, too.)
Preventable? Yes.

The list goes on, but the point remains the same.Electronic Surveillance Detection Audits are cheap insurance, only better!
Insurance can't prevent the disaster.

"Is this a game of chance?" (update)

..."Not the way I play it, no." ~W.C. Fields
New York - A jury began deliberations on Monday in Brooklyn federal court for the retrial of six men accused in a criminal case of an alleged plan to misuse information announced over brokerage-firm "squawk" boxes.

The case concerns announcements at many Wall Street firms that disclose when customers are about to buy or sell big blocks of stock. Federal prosecutors from the U.S. attorney's office for the Eastern District of New York claim that brokers at Merrill Lynch & Co. (now a part of Bank of America Corp.), Citigroup Inc.'s Smith Barney unit and the old Lehman Brothers Holdings Inc. were paid to leave open telephone lines next to the internal speaker systems at their firms so that traders at the now-defunct A.B. Watley Inc. could secretly eavesdrop on block orders by institutional clients between 2002 and 2004.

Prosecutors say the Watley traders made nearly $1 million by trading ahead of, or front-running, the orders that were broadcast. (more) (background)

"Is this a game of chance?"

..."Not the way I play it, no." ~W.C. Fields

New York City — A jury was chosen Monday to weigh charges against four former A.B. Watley Group Inc. executives accused of paying brokers at securities firms thousands of dollars to let them eavesdrop on share orders by institutional clients. (more)

UPDATE - 3/29/07
A former Merrill Lynch & Co. broker (Timothy O'Connell, 42, of Carle Place, New York) was arrested on state gambling charges in New York, postponing his federal trial for selling access to trading information broadcast over his firm's office intercom. ... O'Connell is one of seven defendants on trial for conspiring to trade on information broadcast over internal ``squawk boxes'' at top Wall Street firms. He and brokers at Citigroup Inc. and Lehman Brothers Holdings Inc. allowed day traders at A.B. Watley Group Inc., an online brokerage, to eavesdrop on large institutional orders, according to prosecutors. (more)

Squawk Box Eavesdropping - $500. Fine...

...what a hoot!
NY - A former Smith Barney broker was sentenced to no jail time on Wednesday after he cooperated with federal prosecutors in a probe into an alleged scheme to misuse brokerage-firm "squawk" boxes. (Also called "hoot n holler" and "shout down" boxes, these are always-on intercom systems used at financial trading firms. Sending broadcasts from these devices to unauthorized persons is illegal eavesdropping.)

He now works as a car salesman, was ordered to pay a $500 fine by U.S. District Judge I. Leo Glasser in Brooklyn, but the judge imposed no jail term.

The 48 year old pleaded guilty in 2005 to conspiracy to commit securities fraud. He didn't testify at trial, but provided information that prosecutors said led to the conviction of six people last year, including three former supervisors at defunct day-trading firm A.B. Watley Inc.

Prosecutors from the U.S. Attorney's office in Brooklyn had alleged that he placed an open telephone line next to his squawk box for lengthy periods, allowing day traders at A.B. Watley to secretly eavesdrop on block orders by institutional clients. He received cash bribes in return, prosecutors said. (more) (technical details)