Securities Fraud—“Squawk Boxes”

Ralph D. Casbarro has pleaded guilty to securities fraud in New York.^[1] Mr. Casbarro was employed at Citigroup as a stock broker, and while there, he was provided with a “’squawk box,’ which was part of an internal speaker system at the brokerage firm.”^[2] The squawk box was used by Citigroup to provide material non-public information relating to large securities transactions placed by the firm’s institutional clients.^[3] Mr. Casbarro sold the information he received from the squawk box to day traders at A.B. Watley, Inc.^[4] “Specifically, [he] placed telephone calls to the day traders and left the telephone off the hook next to his squawk box enabling the day traders to hear the trading information being broadcast.”^[5] In return, Mr. Casbarro received cash bribes and substantial commissions.^[6] The day traders profited from the scheme by “’front-running’ or trading in front of large customer orders that were broadcast through Citigroup’s squawk box, in anticipation of the movement in price that the customer’s orders were likely to cause.”^[7]

When Mr. Casbarro pleaded guilty, he admitted that he provided A.B. Watley with non-public, confidential information, and that he was that the day traders were using his information illegally to trade ahead; he also admitted receiving compensation from the day traders.^[8]

Securities Fraud
Under 18 U.S.C. § 1348, it is a crime for a person, having devised a scheme or artifice, to defraud any person in connection with any security of an issuer with a class of registered securities. It is also a crime for a person, having devised a scheme or artifice, to obtain by fraudulent pretenses, any money in connection with the purchase or sale of any security of an issuer with a class of registered securities.

Violating section 1348 is punishable by a fine, imprisonment for up to 25 years, or both.

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[1] US Attorney’s Office, Press Release: Former Citigroup Stock Broker Pleads Guilty to Securities Fraud Scheme Involving "Squawk Boxes," Oct. 7, 2005, available here.
[2] Id.
[3] Id.
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.