Updated from 9:54 a.m. EST

Federal prosecutors on Tuesday announced a new round of indictments and guilty pleas against six people in the so-called "squawk box'' front-running investigation, including two top executives at the daytrading firm AB Watley ( ABWG.PK).

A federal grand jury indicted Robert Malin, AB Watley's co-founder, president and vice chairman, on securities fraud charges, according to the U.S. attorney for the Eastern District of New York. Also indicted on a variety of securities fraud charges were Linus Nwaigwe, the New York-based brokerage's compliance officer, and Michael Picone, Watley's former chief operating officer.

Nwaigwe and Picone also were both charged with lying to the Securities and Exchange Commission, an obstruction of justice charge.

In all, there are 41 counts in the new indictment, which outlines an elaborate scheme by Watley executives to score trading profits from the alleged misuse of confidential communications at three Wall Street firms. The indictment also charges that Watley executives tried cover up their activities and keep regulators from discovering the trading scheme.

The squawk box investigation became public last spring, when TheStreet.com first reported that prosecutors and securities regulators were investigating allegations that some daytrading firms had paid brokers to listen in on the internal communications of several big Wall Street firms. Last summer, prosecutors charged four brokers with taking bribes to permit daytraders to eavesdrop on the squawk box communication systems of their respective firms.

The squawk boxes the Watley traders bought access to carried communications about impending big block trades by institutional customers at Merrill Lynch ( MER), Lehman Brothers ( LEH) and Citigroup ( C).

Prosecutors contend daytraders at Watley, over a two-year stretch, made at least $800,000 in illegal profits using tips they gleaned from the squawk boxes. In effect, the daytraders allegedly engaged in front-running, an illegal practice in which a trader misuses confidential information to trade ahead of someone else.

"By bribing unscrupulous stock brokers, the former AB Watley managers and daytraders who were charged today were able to secretly tap into a steady flow of extremely valuable, confidential information from some of Wall Street's most well-known institutions,'' says U.S. Attorney Roslynn Mauskopf. "The daytraders exploited this information to the fullest extent possible.''

The SEC, meanwhile, filed its own civil complaint in the matter, adding civil charges against five other defendants who weren't named in the indictments. One of those defendants is Steven Malin, the chairman of Watley and the brother of Robert Malin.

More significant, the SEC filed civil charges against Watley Group, the parent company of the firm's brokerage arm, something that could jeopardize its future.

Earlier this month, TheStreet.com reported that prosecutors were nearing a decision on whether to indict Malin and Nwaigwe. Both men had received notifications from the SEC last year that they could face civil charges in the scandal.

Also indicted was Keevin Leonard, who was responsible for managing and training Watley's in-house corps of proprietary daytraders.

Prosecutors also announced that another Merrill Lynch ( MER) broker, who had not been previously identified in the two-year investigation, pleaded guilty to taking cash payments to provide Watley daytraders access to the big Wall Street firm's internal squawk box communications system.

The broker, Paul Coughlin, is the third former Merrill Lynch broker to be implicated in the scandal. Last summer, prosecutors indicted two other former Merrill Lynch brokers, Timothy O'Connell and Kenneth Mahaffy Jr., in the scandal. Also indicted last summer were former Lehman broker David Ghysels and former Citigroup broker Ralph Casbarro.

Casbarro has since pleaded guilty to the charges. Prosecutors also have secured guilty pleas from Benjamin Grimaldi, a former Merrill Lynch senior compliance officer, and a former Merrill Lynch broker assistant.

Some of the brokers also provided similar access to daytraders at Millennium Brokerage, a defunct New Jersey firm.

Prosecutors contend that the daytraders at Watley and Millennium Brokerage used the trading tips to engage in 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. In return for the access, the daytraders at Watley allegedly paid bribes to the brokers in the form of cash or trading commissions.

Last week, William Deakins, a Watley trader who made big profits using tips gleaned from the Wall Street squawk boxes, pleaded guilty to a charge of conspiracy to commit securities fraud.

The squawk box investigation began in the spring of 2004. A big break came when prosecutors indicted John Amore, the former Watley CEO, on an unrelated securities offense. Amore, who is cooperating with prosecutors, allegedly was the mastermind of the squawk box scheme at Watley. Amore used Watley's access to Merrill Lynch's squawk box system as a recruiting tool in wooing skilled daytraders to the firm.

People have described Leonard, the Watley trainer, as Amore's right-hand man. Amore was fired from Waltey in the fall of 2003 over an unrelated dispute.

The new indictment included previously undisclosed information that alleges some defendants carried on their scheme on behalf of a hedge fund called Ellis Island Trading. The indictment alleges those defendants did their trading for Ellis Island over a platform designed by E*Trade, the online brokerage division of E*Trade Group ( ET).

No one from E*Trade was charged by prosecutors. However, some of the Watley defendants briefly worked for E*Trade after leaving Watley. The former Watley employees went to work for E*Trade after the online firm purchased some of Watley's trading software.

Authorities contend that after Amore and his group were booted from Watley, executives at the daytrading firm tried to continue the scheme. The allege Watley did this by striking a deal with Coughlin, who was not part of the original group of brokers put together by Amore.

The indictment alleges that Watley paid Couglin $1,000 a month to continue providing squawk box access. Coughlin had worked in Merrill Lynch's branch office in Rockville Center, N.Y., which is located a few miles away from the Garden City, N.Y., office where Mahaffy and O'Connell had worked.

Prosecutors allege that Robert Malin and Picone authorized the payment of bribes to Coughlin. Prosecutors alleged Picone "falsely testified'' about these payments in an interview with the SEC, saying the money went toward treating Coughlin to a night out at a strip joint.