Legal News

Judge Scolds Feds, Disappoints Defense in ?Squawk? Case

By Amir Efrati

Let’s break away, briefly, from the news concerning the retirement of Justice John Paul Stevens and get you up to speed on an interesting white-collar case playing out in Brooklyn.

After all, it’s not every day that a federal judge chides prosecutors for mistakes but also causes defense lawyers to scratch their heads and mutter in frustration afterward.

But that’s what happened yesterday afternoon in Brooklyn federal court, where six Wall Street brokers and traders were convicted last year of misusing brokerage-firm “squawk” boxes that broadcast client orders to buy and sell stock. Here’s the WSJ story.

The last time we checked in on the case, things were heating up. In January John Gleeson (pictured), the federal judge presiding over the case, granted bail to several defendants, pending an appeal of their convictions.

The bail decision came after claims by a lawyer for one of the defendants, a former Merrill Lynch broker, that the government failed to turn over evidence that could have aided the defense before the first trial in the case, in 2007. The defendants then asked for a new trial or a dismissal of the indictment.

Prosecutors, of course, are required turn over evidence that could aid the defense.

The matter came to a head yesterday at a hearing in Brooklyn federal court, where Gleeson said it was “obvious” that the evidence — depositions of the defendants’ former colleagues that were taken by federal investigators — should have been disclosed.

But Gleeson said the violation didn’t appear to be deliberate and that it wouldn’t have affected the outcome of the trial. At trial, he said, prosecutors proved that the Wall Street brokers sold “squawk” box information to day traders who then paid kickbacks to the brokers.

Mahaffy's lawyer, Andrew Frisch, argued at length that the testimony collected by the SEC bolstered the defense's theory that the brokers didn't know their conduct was forbidden.

Responded Gleeson: “Your arguments haven’t disabused me of the notion that…you can’t sell” squawk box information to day traders. Gleeson implied that he wasn’t leaning toward ordering a new trial.

The judge later turned to the two Brooklyn federal prosecutors in attendance, telling them he was “mystified” by the lack of disclosure.

“This is not a happy day for us,” answered Jay McMahon, chief of the business and securities fraud unit at Brooklyn U.S. attorney’s office.

McMahon, who was part of the second trial team, said his office wrongly “assumed the first trial team had complied” with disclosure rules. “It’s embarrassing. This is not how we like to do business,” he told Gleeson. He said the office recently adopted new disclosure rules that would ensure “something like this will never happen again.”

Full post as published by Law Blog - WSJ.com on April 09, 2010 (boomark / email).