Ex-Watley CEO Has Checkered Past

John Amore, an emerging figure in the SEC's 'squawk box' probe, was indicted in another scandal last year.
By Matthew Goldstein ,

John Amore, the former chief executive of

AB Watley

(ABWG.OB)

, a small daytrading firm that's embroiled in an illegal stock-tips scandal on Wall Street, was indicted last year in an unrelated securities investigation, court documents show.

Federal prosecutors in the Eastern District of New York charged Amorewith defrauding investors in a small hedge fund he managed, Amore Capital Group.

The 18-count indictment, filed several months ago, charges that Amorelied to his investors about his education and his employment history. He also allegedly falsified records concerning a $3.2 million personal loantaken from the fund, and created "fictitious quarterly statements" that were mailed to investors.

The charges are still pending.

Federal prosecutors filed their charges against Amore around the same timethey also began looking into allegations that daytraders were paying WallStreet brokers for the privilege of listening in on confidentialcommunications at several big Wall Street firms.

Amore was fired from Watley in September 2003. Soon after, the NewYork-based daytrading firm filed a lawsuit alleging Amore misled the company about his background and committed a wide array of "improprieties."

TheStreet.com

was the first to report on the

illegal tips probe, which centers on brokerages' "squawk box" communication systems, and Watley's involvement in it. Next week, authorities are expected to take testimony from at least one senior Watley executive.

The Wall Street Journal

reported Friday that federal prosecutors andsecurities regulators involved in the inquiry are investigating Amore's activities at Watley.

Nelson Boxer, Amore's attorney, declined to comment. Amore, who waslast known to reside in Plandome, N.Y, a small village on Long Island's North Shore, could not be reached for comment. Amore's hedge fund was based in GreatNeck, N.Y., a neighboring Long Island community that was home to anumber of daytrading shops during the heyday of rapid-fire trading.

In the investigation, prosecutors and the

Securities and ExchangeCommission

are looking into allegations that daytrading firms andhedge funds paid brokers to secure unauthorized access to internal brokerage calls to gather trading advantages, mainly information about big block trades. The investigation, which began last summer, is focusing on allegations of cash payments to the brokers, or agreements to route trades to the brokers in return for their cooperation.

Getting a tip about a block trade, a single trade of 10,000 or more shares, can be advantageous to traders trying to cash in on sudden price movement in a stock. Such tips could have permitted daytraders to engage in front-running, an illegal practice in which a person with inside information jumps ahead of the investor trading the big block.

People familiar with the inquiry said Amore would be of interest toinvestigators because he oversaw Watley's proprietary daytrading operation,which had agreements with a cadre of fast-fingered traders who conductedbusiness for both their own accounts and the firm's.

People familiar with Watley said traders in the proprietary operationhad access, at times, to squawk box communications coming from severalbrokerage houses. Watley shut down its proprietary trading operation earlylast year, soon after the firm fired Amore.

A squawk box is part of a network used by brokerage houses to permitdirect communications between research analysts, traders and brokers. Thecommunications generally come through a desktop speaker system.

After being ousted from Watley, Amore briefly worked for

E*Trade

(ET) - Get Report

, the big online brokerage and bank. People familiar withAmore said he worked with E*Trade's proprietary trading group until lastJuly. Before he was fired at Watley, Amore had helped negotiate a deal withE*Trade in which the online brokerage licensed some of Watley's daytrading software. E*Trade ultimately purchased the software from Watley.

An E*Trade spokeswoman declined to comment.

Meanwhile, Amore and his former colleagues at Watley continue to go ateach other like cats and dogs, filing and cross-filing lawsuits seekingmillions of dollars in damages.

In one, Watley contends Amore misled it about his backgroundin order to be named the company's CEO in 2002. The litigation also lists awide array of infractions allegedly committed by Amore during his brieftenure as CEO, including the misappropriation of rent money and depositsfrom some of Watley's traders.

Watley also accused Amore of taking kickbacks and secretly recording employees as part of a plot to "blackmail" them.

For his part, Amore has filed a lawsuit seeking $5 million in damages,claiming Watley's chairman, Steven Malin, slandered him. Amore contends Malinslandered him by telling a group of Watley executives in September 2003that Amore was a "criminal" who had stolen "$3.5 million from the firm."

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