Ten former day traders and managers from Delaware-based broker-dealer Watley Inc. have been charged by the Securities and Exchange Commission with participating in a fraudulent scheme that used so-called “squawk boxes” to gain confidential institutional customer order flow information from major brokerages. Former Merrill Lynch broker Paul Coughlin has also been charged. Merrill is one of the brokerages where the listening devices were allegedly in use.
The SEC says Watley made at least $675,000 in profits based on information heard on the squawk boxes on more than 400 occasions, while also making more than $5 million in processing fees from trades with which the Delaware firm compensated brokers for the squawk-box privileges.