Logo of Merrill Lynch is pictured at a branch in Zurich

U.S. appeals court restores guilty plea in ‘squawk box’ case

By Jonathan Stempel

NEW YORK (Reuters) – A federal appeals court on Friday restored the guilty plea of a former Merrill Lynch administrative assistant whose testimony helped convict six former brokers and traders who traded on news from a company “squawk box.”

The 2nd U.S. Circuit Court of Appeals in New York said a lower court judge had erred in expunging the conviction of Irene Santiago, who had pleaded guilty in 2005 for lying to investigators and testifying falsely to a grand jury.

Last June, U.S. District Judge I. Leo Glasser in Brooklyn said it would be unfair to leave the guilty plea on Santiago’s record in light of her minimal culpability, and that the other defendants had by then had their convictions overturned.

But a three-judge appeals court panel said this did not justify overturning the plea through a so-called writ of coram nobis, though Santiago lied out of a “misguided sense of loyalty” to her bosses rather than for personal gain.

“Santiago concedes her guilt, and she points to no flaw in the proceedings that led to her conviction,” the panel said.

“There was neither error nor unfairness in her conviction, much less the kind of ‘extraordinary’ circumstance, or ‘fundamental’ error, that might justify the issuance of the writ.”

Marjorie Peerce, a lawyer for Santiago, was not immediately available for comment.

Santiago’s assistance had helped convict the former brokers and traders in 2009 for listening to discussions about pending customer orders over internal company speakers, or squawk boxes, and then trading on that information before orders were placed, known as “front running.”

The defendants were Kenneth Mahaffy and Timothy O’Connell, both former brokers at Merrill, which is now part of Bank of America Corp; David Ghysels, a former broker at Lehman Brothers Holdings Inc; and Keevin Leonard, Robert Malin and Linus Nwaigwe, who worked at broker-dealer A.B. Watley Inc.

Their convictions were overturned in 2012 after the 2nd Circuit found that prosecutors had withheld evidence and jurors had been instructed improperly. The six men later entered deferred prosecution agreements.

Santiago had worked mainly as assistant to O’Connell.

Glasser had sentenced Santiago in 2010 to a mere $10 fine, and wondered aloud at the time why prosecutors had charged her.

The case is U.S. v Santiago, 2nd U.S. Circuit Court of Appeals, No. 14-2735.

(Editing by Bernadette Baum)


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