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    Six reach deals in securities fraud case

    NEW YORK — Six men charged in a scheme to tip off traders to communications on internal brokerage ‘‘squawk boxes’’ reached deferred-prosecution agreements, the government said Thursday.

    Assistant US Attorney James McMahon announced the deals in Brooklyn federal court.

    In the case, former brokers at Merrill Lynch, Citigroup, Lehman Brothers Holdings, and Smith Barney were accused of conspiring with employees at day-trading firm A.B. Watley Group to use order information transmitted on ‘‘squawk boxes’’ for front-running.

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    The deals were reached after a Manhattan federal appeals court reversed the men’s convictions in August, finding that prosecutors had withheld critical evidence.

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    Under the deals, the men face waiting periods ranging from six months to five years when the charges against them could be revived if they engage in other crimes.

    The men were first tried in 2007 on securities fraud, conspiracy, and other charges. A jury acquitted them of 20 separate securities fraud charges, remained hung on a conspiracy charge, and convicted one defendant, former Merrill broker Timothy O’Connell of witness tampering and making a false statement.

    In a second trial in 2009, a jury found the men guilty of conspiracy to commit honest services and property fraud, according to the ruling.

    The appeals court said that prosecutors failed to disclose until after the trial 30 deposition transcripts taken by the Securities and Exchange Commission, some of which would have supported the defense of ex- Merrill and Smith Barney broker Kenneth Mahaffy Jr. and others.

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    Prosecutors alleged that the brokers helped the Watley traders gain an edge by holding their phone receivers up to their squawk boxes, which carried notifications about major customer orders that could move the market. The traders could then buy or sell shares before the larger deals made an impact on prices.

    To return the favor, Watley traders placed ‘‘wash trades’’ with the brokerages, buying and selling the same security at the same price and paying commissions, which essentially amounted to bribes for the brokers, according to prosecutors.

    Along with Mahaffy and O’Connell, defendants who reached deals with the government included former Lehman broker David Ghysels Jr.; Keevin Leonard, former Watley supervisor of proprietary trading; Linus Nwaigwe, a former Watley compliance director; and Robert Malin, the former president of the day-trading firm. Each had been sentenced to prison.