A former senior compliance manager at
pleaded guilty Wednesday to a witness tampering charge in the so-called squawk box investigation.
Benjamin Grimaldi entered his guilty plea before a federal judge in New York. Grimaldi, who worked at Merrill Lynch's branch office in Garden City, N.Y., is the first person to plead guilty in the investigation into the illegal use of Wall Street squawk box systems to convey trading tips.
previously reported that Grimaldi was negotiating a deal with prosecutors. Lawyers for former Merrill Lynch broker Timothy O'Connell also are attempting to negotiate a plea agreement.
In April, prosecutors charged Grimaldi and O'Connell with trying to coerce O'Connell's former assistant into lying to the grand jury overseeing the investigation.
Prosecutors allege that O'Connell is one of several Merrill Lynch brokers who permitted at least two daytrading firms to listen in to the big Wall Street firm's internal communications system, which is used by Merrill Lynch traders to disseminate information about block trades by customers, according to court filings. The two daytrading firms under scrutiny are
In return for this access, the daytraders allegedly compensated O'Connell by making trades in a Merrill brokerage account and "generating substantial commissions" for the broker. Prosecutors in New York contend that the daytraders used the squawk boxes to gather trading for front-running, an illegal practice in which a person buys or sells shares ahead of a trade he suspects will move a stock's price.
It's believed that Grimaldi, in exchange for his guilty plea, is cooperating with investigators. Prosecutors have agreed to submit a letter to the judge recommending a lighter sentence, if Grimaldi assists investigators.
Sean Casey, one of the assistant U.S. attorneys assigned to the case, declined to comment. Tom Fitzpatrick, the attorney for Grimaldi, also declined to comment.
Merrill Lynch spokesman Mark Herr said the firm has "a strict policy that prohibits the release of proprietary information and will work to make sure that anyone who violates that policy will be held accountable.''
Beside targeting Merrill Lynch, prosecutors and regulators from the
Securities and Exchange Commission
also are looking at whether brokers from
Smith Barney and
provided similar access to daytrading firms and possibly several hedge funds, according to sources.