By Joseph Ax
NEW YORK (Reuters) - (This June 30 story has been corrected to fix last name of lawyer Marjorie Peerce in last paragraph. Corrected story moved on July 1)
A U.S. judge has vacated the conviction of a former Merrill Lynch administrative assistant who lied to a grand jury under pressure from her boss but then helped convict six former brokers and traders of generating illegal profits with information they overheard on a "squawk box."
Judge Leo Glasser of U.S. District Court in Brooklyn took the extraordinarily rare step of vacating the guilty plea of Irene Santiago, who admitted in 2005 to testifying falsely before a grand jury and agreed to cooperate with government investigators.
Santiago's testimony helped convict the six men but their convictions were overturned on appeal. Prosecutors later agreed to drop the charges against them if they met certain conditions.
In a ruling released on Friday, Glasser said it would be an injustice to leave Santiago with a conviction after the six defendants had their records scrubbed clean and their rights restored.
In 2009, thanks in part to Santiago's assistance, prosecutors convicted six former brokers and traders accused of listening in on pending orders from customers over squawk boxes between 2002 and 2004. Prosecutors said the six used the information to trade ahead of those transactions, a practice known as "front running."
The defendants were Kenneth Mahaffy, formerly of Merrill, now part of Bank of America Corp; David Ghysels, formerly of Lehman Brothers Holdings Inc; Timothy O'Connell, formerly of Merrill; and Keevin Leonard, Robert Malin and Linus Nwaigwe, all formerly of the now-defunct broker-dealer A.B. Watley Inc.
Santiago primarily worked as an assistant to O'Connell. When government investigators sought to interview her as part of their probe, O'Connell persuaded her to lie to the grand jury, telling her he would "lose everything" and that he might "do something stupid," Glasser said in Friday's ruling.
In 2010, Glasser sentenced Santiago to a $10 fine, wondering aloud why prosecutors had indicted her given the pressure O'Connell put on her and the cooperation she provided.
Two years later, the 2nd Circuit U.S. Court of Appeals vacated the six men's convictions, ruling that prosecutors withheld key evidence and that jurors had been inadequately instructed.
Last year, prosecutors said they had reached deferred prosecution agreements with the six defendants, permitting the charges to be dropped if they stayed out of legal trouble for a period of time. Lawyers for several of the defendants said at the time they were pleased to put the case behind them.
In vacating the conviction, Glasser said it would be unfair to make Santiago a "real-life Hester Prynne, condemned to wear her scarlet letter of conviction for life."
A spokesman for Brooklyn U.S. Attorney Loretta Lynch said the office was "reviewing Judge Glasser's decision."
In an interview, Santiago's lawyer, Marjorie Peerce, said, "Irene Santiago is pleased to have her name back and not be labeled a felon. The past nine years have been very difficult for her."