ROSLYNN R. MAUSKOPF, United States Attorney for the Eastern District of New York, today announced the guilty plea of RALPH D. CASBARRO, a stock broker formerly employed by Citigroup Global Markets, Inc. ("Citigroup") to participating in a "front-running" securities fraud scheme that generated over $600,000 in illegal profits for himself and others. The guilty plea was accepted today by United States District Judge I. Leo Glasser at the U.S. Courthouse in Brooklyn, New York.

The investigation resulting in CASBARRO's guilty plea was conducted by the United States Postal Inspection Service and supervised by the United States Attorney's Office, with assistance provided by the United States Securities and Exchange Commission ("SEC").¹ The SEC previously filed civil charges against CASBARRO in connection with this case.

As a Citigroup stock broker, Casbarro was provided with a "squawk box," which was part of an internal speaker system at the brokerage firm. Citigroup used its squawk box system to provide certain firm employees with material non-public information relating to large securities transactions placed by the firm's institutional clients.

CASBARRO breached a duty of confidentiality he owed to Citigroup and its institutional customers by selling the information he received over the squawk box to day traders at A.B. Watley, Inc., a New York City based day trading firm. Specifically, CASBARRO 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. In return, the day traders compensated CASBARRO by giving him cash bribes and substantial brokerage commissions generated from "wash trades" (simultaneously buying and selling the same amount of a security at the same price for the sole purpose of generating a commissions).

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. The scheme injured Citigroup's customers because it allowed the A.B. Watley day traders to purchase and sell the securities in question at favorable prices, which were no longer available to the customers by the time their orders were executed.

In pleading guilty today, CASBARRO admitted that he provided the A.B. Watley day traders with non-public, confidential information and that he was aware that the day traders would illegally use the information to "trade ahead" of customer orders for their own profit. CASBARRO also admitted that he accepted compensation from the day traders in exchange for the information.

"By participating in this fraudulent 'front-running' scheme, CASBARRO breached his duty to his employer and to its clients," stated United States Attorney MAUSKOPF. "We are committed to bringing to justice securities professionals who exploit confidential non-public information for their own personal gain." Ms. MAUSKOPF thanked the Postal Inspection Service and the SEC for their assistance.

When sentenced by Judge Glasser, CASBARRO faces a maximum sentence of 25 years' imprisonment, five years' supervised release, and a $250,000 fine.

The government's case is being prosecuted by Assistant United States Attorneys Michael A. Asaro and Sean Casey.

The Defendant:

Name: RALPH D. CASBARRO
DOB: 1/5/62

 

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¹ CASBARRO was charged with three co-defendants in an indictment unsealed on August 15, 2005 -- Kenneth E.Mahaffey, Jr., a stock broker formerly employed by Merrill Lynch & Co. and Citigroup, Timothy J. O Connell, a stock broker formerly employed by Merrill Lynch & Co., Inc., and David G. Ghysels, Jr., a stock broker formerly employed at Lehman Brothers. The charges against the co-defendants remain pending.

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