April 16, 2013

Securities Fraud Roundup: 6th Circuit Affirms Ruling Affirms Broker’s Liability Over Reverse Merger, Ex-Stockbroker Pleads Guilty to Insider Trading Over IBM’s SPSS Acquisition, & Father and Son Convicted in $50M Real Estate Fraud

6th Circuit Affirms Ruling Affirming Broker’s Liability Over Reverse Merger
The U.S. Court of Appeals for the Sixth Circuit says that a district court was correct in granting summary judgment to the Securities and Exchange Commission over its claim that broker Aaron Tsai made disclosure and registration violations related to a “reverse merger” involving a shell company. The lower court had ordered Tsai to pay about $352,000 in disgorgement and prejudgment interest while barring him from future violations. Affirming that court’s decision, the appeals court said that the broker’s transactions in unregistered stock were not exempt, pursuant to 1933 Securities Act Rule 144(k).

Tsai was the former president and CEO MAS Acquisition XI Company, which had a reverse merger and sold shares on the OTCBB in 2000. After his initial filing was turned down, he moved shares from five former directors who were initial company shareholders, to 28 other shareholders via previously signed stock powers. Tsai then obtained approval to finish up the reverse merger with Blue Point. The SEC filed civil enforcement naming him and other defendants while alleging Securities Act and Exchange Act violations, including failure to register securities before their sale or offering and failure to reveal that he had beneficial ownership of the securities.


Ex-Stockbroker Pleads Guilty to Insider Trading Involving IBM, SPSS Acquisition
In the U.S. District Court for the Southern District of New York, ex-broker Thomas Conradt pleaded guilt to insider trading charges, including securities fraud and conspiracy, involving IBM Corp.'s (IBM) acquisition of SPSS Inc. Conradt’s roommate, co-defendant and equities analyst Trent Martin, allegedly tipped him about the insider news. Prosecutors say that the former then purchased shares of the software manufacturer and tipped colleague David Weishaus about the likely merger. They also allegedly tipped another two co-workers.

Conradt, Weishaus, & Martin, whom prosecutors say made over $1 million, in insider trading profits, are also facing an SEC enforcement action over this alleged misconduct.


$50M Real Estate Fraud Leads to Criminal Convictions for Father and Son
A jury has convicted real estate investment fund BBC Equities LLC founder John Bravata and his son Antonio of securities fraud involving allegations that they bilked investors of over $50 million. Per the indictment, beginning in 2006, Bravata got investors involved in fund while his son became a willful participant in the scam. Bravata told potential investors that BBC was a safe vehicle and that he would not be getting any commissions.

However, as BBC’s manager, Bravata not only got compensation, but also, he paid himself from investors’ money whether or not the fund turned a profit. Only $20.7 million of investors’ money actually went into real estate, while the rest was used as a “general slush fund” for personal spending, bringing in new investors, and making Ponzi-like payments. The SEC sued Bravata over these alleged actions in 2009.

Please contact our stockbroker fraud law firm to ask for your free, no obligation case assessment.


SEC v. Sierra Brokerage Services Inc. (PDF)

Former broker pleads guilty to insider trading, Reuters, April 3, 2013

United States v. Bravata


More Blog Posts:
Previous Dissent by Arbitrator is Not Reason to Vacate Award Morgan Keegan Was Ordered to Pay Investors, Says District Court, Stockbroker Fraud Blog, April 8, 2013

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012

$698M MBS Lawsuit Seeking Damages from Goldman Sachs Group Can Take on Class Action Status, Says District Judge, Institutional Investors Securities Blog, February 23, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading , Securities Fraud

March 29, 2013

SEC Reaches $600M Insider Trading Settlement with SAC Capital Advisors-Affiliated Hedge Fund Advisory Firm

Calling it its largest insider trading settlement to date, the Securities and Exchange Commission has settled its securities case with CR Intrinsic Investors LLC, an SAC Capital Advisors-affiliated hedge fund advisory firm, for $600 million. The regulator had sued the CR Intrinsic Investors and portfolio manager Matthew Martoma last year, accusing the latter of gaining access to inside information about an Alzheimer's drug trial that was being developed by pharmaceutical companies Wyeth and Elan Corp. plc. before the results were released to the public.

The advanced information noted that the drug might be ineffective. This allegedly prompted Martoma to liquidate the position of his funds in both companies’ stocks and take on short positions. Martoma and his funds are said to have yielded $276 million in avoided losses (or profits) from the scam. He is now facing related criminal charges.

Earlier this month, the SEC amended its securities lawsuit, adding SAC and four affiliated hedge funds as relief defendants for allegedly receiving ill-gotten games from the insider trading scheme. According to the regulator’s acting director of enforcement George Canellos, the evidence in this case came from “the earth,” meaning that they were obtained from phone records, trading records, business records, and other information (as opposed to wiretaps).

The defendants resolved the securities case without denying or admitting to the claims. They agreed to pay about $275 million in disgorgement, a $275 million penalty, and $52 million in prejudgment interest. A court, however, must approve the settlement.

US v. Martoma (PDF)

SEC v. CR Intrinsic Investors (PDF)


More Blog Posts:
Investors are Not Raymond James Financial Customers for FINRA Arbitration Purposes, Rules 4th Circuit, Stockbroker Fraud Blog, March 28, 2013

Investment Advisors Report: SEC Division Reviews Application of Investment Advisers Act, New Commission Unit Will Watch For Adviser Risk, & Just 1 in 10 SEC Exams Leads to Enforcement Action, Stockbroker Fraud Blog, March 26, 2013

Continue reading "SEC Reaches $600M Insider Trading Settlement with SAC Capital Advisors-Affiliated Hedge Fund Advisory Firm" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading , SEC , Securities Fraud

March 16, 2013

District Court Turns Down Dallas Mavericks Owner Mark Cuban’s Summary Judgment Request in Insider Trading Lawsuit by SEC

In SEC v. Cuban, the U.S. District Court for the Northern District of Texas has rejected Dallas Mavericks owner Mark Cuban’s request for summary judgment in the Securities and Exchange Commission’s insider trading case against him. This ruling allows the SEC to take the securities claims to a jury.

There have been numerous court rulings already in the regulator’s financial fraud case against Cuban, made on the grounds of an alleged misappropriation theory of insider trading in 2008. The Commission believes that Cuban broke the federal securities laws’ antifraud provisions when he sold stock shares that he owned in Mamma.com after finding out about material non-public information about a PIPE offering that the company was about to make. By getting rid of 600,00 shares, he went on to avoid losing $750,000.

Per the SEC's Texas securities claims, Cuban fooled Mamma.com when he consented to honor a confidentiality agreement about the information related to PIPE and agreed to not trade on this data but then proceeded to sell his stock without first telling the company that he was going to trade on the information. His action caused him to avoid taking huge losses when Mamma.com’s stock price fell after the PIPE offering was announced to the public.

According to the district court, however, a real issue of fact exists regarding whether Cuban consented, at least implicitly, to not trade or use the nonpublic information about PIPE to his benefit. The court said that the SEC must prove that Cuban did not reveal to Mamma.com that he meant to trade on the nonpublic information that was shared with him. If the Texas billionaire did “fully disclose this intention,” then he didn’t deceive Mamma.com and he is not liable under insider trading’s misappropriation theory.

The district court rejected Cuban’s claim that he should get summary judgment because the information he had regarding Mamma.com was immaterial and not confidential and any agreement he made to keep what he knew confidential was not valid per the contract doctrine of mutual mistake of fact. The court said that the SEC has shown enough evidence for a jury to determine that the PIPE information revealed to Cuban was material.

PIPE Offering
PIPE stands for private investment in public equity. In this type of offering, investors agree to buy a certain amount of restricted shares at a set price. In exchange, the company consents to submit a resale registration statement that will allow them to sell back the shares to the public.

Please contact our Texas securities fraud lawyers if you believe your investment losses are a result of some time of investment scam or due to the misconduct of your financial representative.

Related Web Resources:
District Court Turns Down Dallas Mavericks Owner Mark Cuban’s Summary Judgment Request in Insider Trading Lawsuit by SEC, Reuters, March 5, 2013

Read the SEC Complaint


More Blog Posts:
Texas Securities Fraud: IMS Securities Settles FINRA Case Alleging Inadequate Supervision of Wholesale Representatives, Stockbroker Fraud Blog, March 7, 2013

Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

US Sentencing Commission is Open to Public Comment on Proposed Amendments that Could Impact Insider Trading Convictions, Institutional Investor Securities Blog, February 29, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading , Texas Securities Fraud

December 28, 2012

Stockbroker Fraud Headlines: Wells Fargo Banker Charged Over $11M Insider Trading, Morgan Stanley to Resolve Facebook IPO Action for $5M, & SEC Accuses Canadian Broker of Inadequate Day Trader Supervision

Wells Fargo Banker and 8 Others Accused of Alleged $8M Insider Trading Scam
The U.S. Attorney for the Western District of North Carolina is charging Wells Fargo (WFC) investment banker John Femenia and eight alleged co-conspirators with involvement in an alleged $11 million insider trading scam. Femenia is accused of stealing confidential data from his employer and its clients about acquisitions and mergers that were pending. He then either directly or via others tipped his co-conspirators, receiving kickbacks in return.

According to the N.C. government, the insider trading scam resulted in $11M in profits. While six of the co-conspirators opted to plead guilty to conspiracy to commit insider trading, Femenia and the other two have been indicted on multiple charges of conspiracy and insider trading. The same defendants, and another person, are also named in the SEC lawsuit over the scheme.


Morgan Stanley to Settle Massachusetts’ Facebook IPO Allegations for $5M
Morgan Stanley & Co. LLC (MS) will pay $5 million to settle the Massachusetts securities regulator’s allegations that the financial firm’s investment bankers improperly affected research analysts over Facebook Inc.’s (FB) IPO. The financial firm was the initial public offering’s lead underwriter. (It was just in October that Citigroup Global Markets Inc. (C) also settled with the Massachusetts regulator for $2M claims that an analyst acted improperly by making available confidential data about Facebook prior to the latter’s going public.)

Per the allegations, After Facebook’s CFO told a Morgan Stanley senior investment banker that the social media company’s projected revenue might be lower than predicted, the banker supposedly told the CFO to take certain steps to make it seem as if all investors were being given access to this information. This banker also allegedly organized calls with research analysts to give them this new information. The analysts would go on to modify their estimates but only told institutional investors about it.


Canadian Brokerage Firm Agrees to Industry Bar for Alleged Inadequate Day Trader Supervision
Biremis Corp. and its cofounders Charles Kim and Peter Beck agreed to a permanent industry bar for allegedly neglecting to properly supervise overseas day traders who were then able to allegedly use the brokerage firm’s order management system to take part in layering, which is a manipulative trading practice that involves the placing of orders that will not be executed to fool others into trading at an artificial price. The orders are later cancelled.

The Securities and Exchange Commission contends that Biremis, which allows up to 5,000 traders on up to 200 trading floors in 30 nations to access US markets, did not deal with repeated incidents of layering committed by the overseas traders despite the red flags. The brokerage firm, Kim, and Beck have agreed to settle the Securities and Exchange Commission allegations without denying or admitting to the alleged misconduct.

Ex-Wells Fargo Banker Among Nine Hit With Insider Trading, Bloomberg/BNA, December 13, 2012

Mass. fines Morgan Stanley $5M over Facebook IPO, AP/ NECN, December 17, 2012

SEC Revokes Registration of Toronto-Based Broker and Bans Two Executives from U.S. Securities Industry for Allowing Layering, SEC, December 18, 2012


More Blog Posts:
SEC Intends to Examine 25% of Investment Advisers That Had To Register, Per Dodd-Frank Act, by End of 2014, Stockbroker Fraud Blog, December 26, 2012


Investment Advisor Securities Roundup: Two Firms Settle SEC Claims That They Impeded with Examinations, FINRA Defends SRO Model, IA Allegedly Duped Private Equity Investors, & CDO Misrepresentation Accusations Against GSCP Executive Are Dismissed, Stockbroker Fraud Blog, December 10, 2012

GAO Says Most Financial Regulators Don’t Have the Procedures/Policies to Coordinate Dodd-Frank Rules, Institutional Investor Securities Blog, December 24, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Financial Firms , Inadequate Supervision , Insider Trading , Morgan Stanley , Wells Fargo

September 28, 2012

Insider Trading Roundup: SEC Settlement Reached Over Alleged Tips In Insurers’ Merger, Court Won’t Throw Out Criminal Charges Related to Info From AA Member, & Asset Freeze Approved Against Broker In Burger King Acquisition

The Securities and Exchange Commission has reached a settlement with three men accused of trading on insider information about the acquisition between Mercer Insurance Group Inc. and United Fire & Casualty Co. (UFCS), with the latter to obtain the former. Per the SEC, in or around June 2010, Mercer Insurance director H. Thomas Davis Jr. found out about the talks between the two insurance companies and then allegedly tipped business associate/friend Mark W. Baggett, who then allegedly tipped golfing partner Kenneth Wrangell. Baggett and Wrangell then bought Mercer stock that they sold when the merger became public in November of that year. The Commission says they made over $83,000 in illegal profits.

Wrangell, who reportedly went into a cooperation deal with SEC investigators right away when they approached him about the insider trading, saw his penalty reduced to $11,380.39. His disgorgement remains at is $42,521.55. This agreement led to the quick gathering of evidence and settlements against the other two men. In addition to a bar from working for a public company as a director or officer, Davis has consented to be severally and jointly liable for the disgorgement of $41,584.45, which were Baggett’s profits, in addition to a $41,584.45 penalty and prejudgment interest.) Baggett will also pay disgorgement and a penalty.

In a Pennsylvania insider trading case, a district court has decided not to dismiss criminal securities fraud charges against Timothy McGee, who allegedly traded securities in a merger target using information that he obtained from a fellow Alcoholics Anonymous member. Judge Tim Savage found that the prosecution alleged enough facts to support that there was a relationship of confidence/trust between the defendant and his tipster.

The SEC had accused McGee and four direct/indirect tippees of trading stock using information that he had obtained by from executive of the merger target. That person allegedly told McGee that he was worried about his sobriety because of his company’s pending acquisition. The US Attorney’s Office went on to indict McGee on perjury and securities fraud charges over this alleged misconduct.

He has fought to get the securities fraud charge thrown out claiming that the indictment failed to allege that the confidential relationship between him and the tipster existed. However, the court said that it was a jury’s job to determine whether insider information was given and what was the context of the relationship. The court also turned down McGee’s challenge to 1934 Securities Exchange Act Rule 10b5-2, which was what he was charged under. He contended that it was a rule that was unconstitutionally void.

In a different insider trading case, the SEC said that the U.S. District Court for the Southern District of New York has approved its request for an emergency asset freeze order against broker Waldyr Da Silva Prado Neto. He is accused of engaging in insider trading based on information that he obtained from a brokerage customer prior to Burger King’s announcement that 3G Capital Partners Ltd., a private equity fund, was acquiring it.

Prado was allegedly working for Wells Fargo (WFC) when he found out about the takeover from the client, who had put $50 million in the fund that was used to acquire the hamburger chain in 2010. The Commission says that between May and September of that year, the Brazilian citizen traded in Burger King stock and made $175,000 in illegal earnings. He also is accused of tipping other people. both in Brazil and abroad, and they, too, allegedly traded on the insider tip (one of them made $1.68 million).

The SEC wanted asset freeze to keep Prado, who had recently left his job at Morgan Stanley Smith Barney, from moving more of his assets outside the country. However, the SEC noted that our national borders will not stop it from fighting against insider trading that takes place in the US.

Director, His Tippees Settle SEC Suit They Traded on Inside Merger Information, BNA Bloomberg, September 24, 2012

United States v. McGee (PDF)

SEC v. Prado (PDF)


More Blog Posts:
Institutional Investment Fraud Roundup: Ex-Hedge Fund Managers’ Guilty Plea Over Bilking Investors of Almost $1M Get 3-Year Prison Term, SEC Sues Investment Adviser Over Alleged $37M Ponzi, and SEC Files Lawsuit Over Purported “Fund of Funds” Scam, Institutional Investor Securities Blog, September 26, 2012

Lehman Brothers Australia Found Liable in CDO Losses of 72 Councils, Charities, and Churches, Institutional Investor Securities Blog, September 25, 2012

Texas Securities Fraud: Investor Sues Behringer Harvard REIT I, Stockbroker Fraud Blog, September 26, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading

June 19, 2012

Texas Securities Case: Mark Cuban Asks District Court To Reconsider Compelling the SEC to Produce Documents Related to Insider Trading Allegations Over Mamma.com Stock Offering

For the third time, billionaire Mark Cuban is asking the U.S. District Court for the Northern District of Texas to reconsider a previous ruling denying his motion to make the Securities and Exchange Commission provide summaries and interview notes related to its probe into his alleged insider trading activities. Cuban also wants the court to make the SEC give over similar documents in its investigation of Mamma.com.

The SEC had filed insider trading charges against Cuban, who is the owner of the Dallas Mavericks and the founder of HDNet, in 2008. The Commission is contending after Cuban became involved in a confidentiality agreement while on the phone with Mamma.com’s CEO about that company’s decision to take part in a PIPE offering, within hours of being given this insider information, he contacted his broker and allegedly improperly sold his 600,000 shares prior to the PIPE announcement. As a result, he avoided more than $750,000 in losses. Cuban has denied the Texas securities fraud allegations.

The district court threw out the SEC’s charges against Cuban in 2009, but the following year the U.S. Court of Appeals for the Fifth Circuit revived and remanded the Texas securities lawsuit against him. Then, last August Cuban moved to have certain documents produced, and he followed that request in September with an amended second motion. The SEC submitted its own motion to compel Cuban to produce documents in November.

Earlier this year, the district court ruled that Cuban is entitled to the nonprivileged parts of the SEC’s investigative files related to the probes on him and Mamma.com, as well as to documents having to do with the connection between the two investigations. The court, however, also decided that the Commission isn’t required to produce documents pertaining to certain individuals’ involvement with Mamma.com or the interview summaries and factual sections from the SEC’s interviews with certain witnesses in its Cuban probe.

Now, in his latest motion to compel, Cuban has stated that he believes that the summaries and notes he wants produced will allow his witnesses to remember events that happened nearly a decade ago. Referring to the court’s previous decision to partially grant his motion, Cuban said that the interview notes that the SEC produced after the court’s last order not only “exonerate” him but also demonstrate the “undue hardship” he is facing in litigating this lawsuit if the SEC is allowed to keep “withholding” interview documents.

SEC v. Cuban is slated to go to trial.

SEC Accuses Mark Cuban of Insider Trading, New York Times, November 17, 2008

Cuban Asks Court, for Third Time, To Compel SEC to Produce Documents, Bloomberg/BNA, June 12, 2012


More Blog Posts:
Dallas Mavericks Owner Mark Cuban's Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 18, 2011

After District Court Dismisses Texas Securities Fraud Against Billionaire Mark Cuban, SEC Appeal Can Now Move Forward, Stockbroker Fraud Blog, August 17, 2009

US Sentencing Commission is Open to Public Comment on Proposed Amendments that Could Impact Insider Trading Convictions, Institutional Investor Securities Blog, February 29, 2012

Continue reading "Texas Securities Case: Mark Cuban Asks District Court To Reconsider Compelling the SEC to Produce Documents Related to Insider Trading Allegations Over Mamma.com Stock Offering" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading , Texas Securities Fraud

March 13, 2012

Texas Securities Fraud: District Court Holds Ex-Dell Administrative Assistant and Her Stockbroker Spouse Liable for Insider Trading

In the U.S. District Court for the Western District of Texas, Judge James R. Nowlin entered summary judgment against Marleen and John Jantzen. In SEC v. Jansen, the Securities and Exchange Commission had charged the couple with Texas securities fraud for using insider information about Dell Inc. to buy Perot Systems Corp. securities. Marleen is a former Dell administrative assistant. John is a registered stockbroker.

The SEC submitted the allegations against couple in October 2010 and contended that Marleen gave material, nonpublic information about Dell’s upcoming tender offer for Perot shares to her husband. The Commission claimed that on September 18, 2009, which was the final day of trading prior to the announcement of the Perot acquisition, Marleen, who was given “explicit orders” by her employer “not to trade, ” made a cash transfer to the Jantzens’ brokerage account. Within minutes of the money being moved over, John bought 24 Perot call options contracts and 500 shares of Perot common stock. He cashed in on September 21, 2009, which is the same day that Perot Systems and Dell announced the tender offer. (The stock price had immediately gone from $17.91 to $29.56, allowing the couple to make $26,920.50 in trading profits in a single day.)

According to the Court, the Jantzens violated sections 14(e) and 10(b) of the Exchange Act and Rules 14e-3(a) and 10b-5 thereunder, and Marleen also violated Rule 14e-3(d). The couple is enjoined from future violations of these provisions. They must also pay $26,920.50 in ill-gotten gains, as well as prejudgment interest. The Court also found that per evidence, there was a “high degree of scienter” especially involving John, who, as a licensed securities broker, was most certainly cognizant of his actions and their meaning. The district court, however, has deferred a final ruling on the SEC’s request for monetary penalties pending further briefing by both sides.

The Jantzens are not the only ones to settle with the SEC over insider trading related to the Dell-Perot Systems deal. In 2010, Texas resident Reza Saleh agreed to give back over $8.6M in illicit profits he made after he made illegal trades in Perot Systems call options before the merger was made public.

Saleh, who used to work for companies owned by the Perot family, settled the Texas securities claim without deny or admitting to the allegations. He also consented to an SEC administrative order that says he cannot associate with any investment advisers ever again. He also agreed to a permanent enjoinment that would prevent him from violating the Securities Exchange Act of 1934’s anti-fraud provisions in the future.

COURT ENTERS SUMMARY JUDGMENT AGAINST INSIDER TRADING DEFENDANTS JOHN JANTZEN AND WIFE, MARLEEN JANTZEN, SEC, March 1, 2012

SEC settles insider trading case involving Perot acquaintance Reza Saleh, Dallas News, January 6, 2010

More Blog Posts:
Texan R. Allen Stanford Convicted on 13 Criminal Counts Over $7.2B Ponzi Fraud, Stockbroker Fraud Blog, March 7, 2012

NFA Enforcement Action Filed Naming Texas Financial Firm J Hansen Investments, Stockbroker Fraud Blog, February 26, 2012

US Sentencing Commission is Open to Public Comment on Proposed Amendments that Could Impact Insider Trading Convictions, Institutional Investor Securities Blog, February 29, 2012

Continue reading "Texas Securities Fraud: District Court Holds Ex-Dell Administrative Assistant and Her Stockbroker Spouse Liable for Insider Trading" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading , Texas Securities Fraud

January 18, 2012

$78M Insider Trading Scam: "Operation Perfect Hedge” Leads to Criminal Charges for Seven Financial Industry Professionals

Criminal charges have been filed against seven men over their alleged involvement in a $78 million insider trading scam. More arrests stemming from "Operation Perfect Hedge,” conducted by the US Department of Justice and the Federal Bureau of Investigation, are likely. US Attorney for the Southern District of New York Preet Bharara has described the defendants as friends that established a criminal club with the intent of making a profit.

According to the criminal complaint, four of the men were charged with conspiracy to commit securities fraud and conspiracy fraud. The co-conspirators allegedly made close to $78 million. $61.8 million in illegal profits was trades between 2008 and 2009 involving a single stock, and $15.7 million was from Nvidia Corp.-related trades.

High-level executives at some of the country’s largest hedge funds were involved. One of the people arrested was Anthony Chiasson, who co-founded Level Global Investors. Because of insider information that a hedge fund analyst allegedly gave him about a soon-to-be issued announcement regarding Dell Inc.’s 2008 earnings for the first two quarters, he and others at the hedge fund were able to earn about $57 million in illegal trading profits. (The $53 million that Chiasson is accused of pocketing is the largest single illegal trade to be ever cited in a criminal case in Manhattan federal court.)

The insider tip on Dell’s earnings also led to $1M in illegal profits for another hedge fund and $3.8 million at a third one. Meantime, an investment firm was able to use the insider information to prevent about $78,000 in financial losses.

Also arrested were Sigma Capital Management analyst Jon Horvath, hedge fund portfolio manager Todd Newman, who used to work at Diamondback Capital Management LLC, and analyst Danny Kuo. Sandeep Goyal, who is a former Dell employee, has already pleaded guilty to conspiracy to commit securities fraud and securities fraud. He had gotten the insider information from other Dell employees after he started working at a global asset management firm as an associate analyst. According to authorities, a hedge fund even paid Goyal $175,000 for insider information about Dell.

Two people identified as co-conspirators were Jesse Tortora, who allegedly used tip information from Goyal to tip others and Spyridon (Sam) Adondaki, the Level Global Investors analyst who is accused of tipping Chiasson, who was his manager.
In the past few years, the government has taken more aggressive measures to fight insider trading. These latest arrests raise the number of people arrested in its recent crackdown to 63. 56 convictions have resulted thus far.

'Corruption on grand scale' in insider trading case, CNN, January 18, 2012

7 charged in $78M record-setting inside trade case, Fox News/AP, January 18, 2012


More Blog Posts:
Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam, Stockbroker Fraud Blog, January 4, 2012

Hedge Fund Manager Raj Rajaratnam Ordered by SEC to Pay $92.8M Penalty for Insider Trading, Stockbroker Fraud Blog, November 12, 2011

Insider Trading: Former FrontPoint Partners Hedge Fund Manager Pleads Guilty to Criminal Charges, Institutional Investor Securities Blog, August 20, 2011

Continue reading "$78M Insider Trading Scam: "Operation Perfect Hedge” Leads to Criminal Charges for Seven Financial Industry Professionals" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading

January 4, 2012

Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam

The Securities and Exchange Commission has filed Texas securities fraud charges against Life Partners Holdings Inc. and three of the company’s senior executives over their alleged involvement in a life settlement scam. Life Partners, which is a Nasdaq-traded company, makes nearly all of its revenue from the life settlements it brokers.

According to the SEC, CEO and Chairman Brian Pardo, CFO David Martin, and general counsel and president Scott Peden misled shareholders when they failed to reveal a significant risk, which was that Life Partners was materially underestimating the estimates for life expectancy that it was using to determine how to price transactions. The estimates have a critical effect on company profit margins, revenues, and shareholder profits.

The Commission contends that Life Partners, Pardo, Peden, and Martin took part in improper accounting and disclosure violations, which allowed the company’s books to become overvalued while making it appear as if there was a steady stream of earnings coming from the life settlement transactions that were being brokered.

Peden and Pardo are also charged with insider trading. The SEC claims that the two men sold about $300,000 and $11.5M, respectively, of Life Partners stock at prices that were inflated even though they had material, non-public information disclosing that the company had relied on short life expectancy estimates to make revenue.

In a statement issue by the SEC's Division of Enforcement Director Robert Khuzami, the agency is claiming that Life Partners also deceived shareholders by retaining a medical doctor to designate baseless life expectancy estimates to underlying insurance policies. Dr. Donald T. Cassidy, who lacks actuarial training and had no previous experience in assigning life expectancy estimates, began working with Life Partners in 1999. (The Commission claims that Pardo and Peden neglected to perform substantial due diligence on the doctor’s qualifications to do this job. They also are accused of telling him to use a methodology created by a former underwriter, who is one of the company’s owners.)

Beginning fiscal year 2007 through fiscal year 2011’s third quarter, Life Partners allegedly understated impairment costs related to life settlement investments and prematurely recognized revenue. The company is also accused of improperly accelerating revenue recognition starting from the closing date until when it got a non-binding agreement with the policy owner to sell the life settlement. Because Life Partners used these Dr. Cassidy’s life expectancy estimates in its impairment calculations, millions of dollars in impairment costs were understated.

The SEC wants the repayment of bonuses and profits from stock sales.

Life Settlements
These usually involve the selling and buying of fractional interests of life insurance policies in the secondary market. For a lump sum amount, life insurance policy owners sell investors their policies. The amount that is offered is supposed to factor in the life expectancy of the insured and the policy’s terms and conditions. The longer the insured is expected to life, the more the investor has to pay in premiums. Policies owned by persons expected to not life as long cost more.

SEC fraud case could give new life to life settlements controversy, Bloomberg/Investment News, January 4, 2012

SEC Charges Life Settlements Firm and Three Executives with Disclosure and Accounting Fraud, SEC, January 3, 2012

SEC Complaint


Texas Securities Fraud: Unregistered Adviser Confesses to Selling Almost $400K in Promissory Notes and Investments Despite Cease and Desist Order, Stockbroker Fraud Blog, December 5, 2011

Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal, Stockbroker Fraud Blog, December 2, 2011

Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme, Stockbroker Fraud Blog, November 11, 2011

Continue reading "Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading , Life Settlements , SEC Enforcement , Texas Securities Fraud

November 12, 2011

Hedge Fund Manager Raj Rajaratnam Ordered by SEC to Pay $92.8M Penalty for Insider Trading

In the U.S. District Court for the Southern District of New York, the Honorable Jed S. Rakoff has ordered Raj Rajaratnam to pay a record $92.8 million penalty for insider trading. This is the largest amount any individual has been ordered to pay for this type of securities fraud.

It was just last month that Rajaratnam, the billionaire Galleon Group, LLC co-founder, was sentenced to 11 years in prison and ordered to pay $10 million for his financial scam that garnered $63.8M in illegal gains. He also was forced to forfeit $53.8M. A jury had convicted Rajaratnam of multiple counts of securities fraud and conspiracy for using illegal tips to make trades before news about mergers, earnings, forecasts, and spinoffs became public.

Along with the fines from the criminal case, the penalty for the civil case ups the total of monetary sanctions that Rajaratnam has been ordered to pay to over $156.6 million. The SEC’s civil action also permanently enjoins him from violating sections of the Securities Act of 1933, the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5.

It was in 2009 that the SEC charged Rajaratnam and several others in the insider trading scam. More defendants were named later that year, as well as in 2010. The case against them was part of a wider insider trading probe that has now charged 29 entities and individuals. Securities in over 15 publicly traded companies were involved resulting in more than $90 million in illicit profits or losses avoided.

Last month, the SEC was able to get a final judgment by consent against Galleon Management. The hedge fund is permanently enjoined from violating the federal securities laws’ antifraud provisions. It is also jointly and severally liable for what Rajaratnam has been ordered to pay.

Also in October, the SEC charged Rajat K. Gupta for providing insider trading tips to Rajaratnam. Gupta, who used to be the global head at McKinsey & Co., was on the boards of Procter and Gamble and Goldman Sachs at the time.

Alleged tips included confidential information about P & G and Goldman’s respective quarterly earnings and a $5 million investment that the latter was planning to make in Berkshire Hathaway. These latest charges come now, after the SEC dismissed charges in an earlier administrative proceeding against Gupta for the same alleged misconduct. Gupta also recently pleaded not guilty to insider trading charges, including multiple counts of securities fraud and one count of conspiracy to commit securities fraud.

The New York Times reports that in the last two years, the US government charged 56 people with insider trading. 51 of these individuals have either been convicted or pleaded guilty.

With Gupta’s Arrest, Insider Inquiry Goes Beyond Wall St., NY Times, October 26, 2011

SEC Brings New Charges against Raj Rajaratnam, SEC, October 26, 2011

More Blog Posts:
Galleon Group LLC Co-Founder Raj Rajaratnam Sentenced to 11 Years in Prison Over Insider Trading Scam, Stockbroker Fraud Blog, October 13, 2011

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investor Securities Blog, April 19, 2011

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

Continue reading "Hedge Fund Manager Raj Rajaratnam Ordered by SEC to Pay $92.8M Penalty for Insider Trading " »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Hedge Funds , Insider Trading

November 8, 2011

Former Deloitte Tax LP Partner’s Wife Settles Insider Trading Charges for $1M

The Securities and Exchange Commission says that Annabel McClellan has settled for $1M insider trading allegations that she and her husband gave relatives confidential information about merger deals. Annabel is the wife of Arnold McClellan, who used to be a partner at Deloitte Tax LP where he was head of the mergers and acquisitions teams.

If a federal judge approves the securities fraud settlement, the SEC will dismiss the claims against Arnold. By agreeing to settle, Annabel is not denying or admitting to the securities charges.

Per the SEC, Annabel used confidential information that she got from her husband to tip her brother-in-law James Sander and her sister Miranda. These family members then allegedly used this knowledge to make trades before the transactions (usually involved pending acquisitions and mergers) were announced to the public. This allowed them to make millions in illicit profits.

In addition to the civil penalty, Annabel has agreed to permanent enjoinment from violating Securities Exchange Act of 1934’s Section 10(b) and Rule 10b-5 thereunder. She also earlier pleaded guilty to obstructing the SEC’s probe into the insider trading scam after admitted to making false statements related to the investigation. Annabel maintains that her husband knew nothing about her activities.

The McClellans were charged with insider trading by the SEC last year following a parallel probe by the Commission, the Financial Services Authority (FSA), the Department of Justice (DOJ, and the Federal Bureau of Investigation (FBI). According to the SEC’s complaint, at least seven times between 2006 and 2008, Arnold McClellan revealed confidential information to his wife, who then passed on what she knew to Miranda and James in London.

James, who owns a trading company, would then buy derivative financial instruments. He also took financial positions in US companies that were acquisition targets. When Arnold would find out that some of the deals were not certain, James would liquidate his positions. The Commission says that the trades were closely timed with phone calls made between the two sisters, as well as in-person visits between the couples. By 2008, James allegedly made over £1.5 million from the tips and his financial firm’s clients and colleagues made over £10 million.

Insider Trading
Insider trading hurts the stock market, affects investor confidence, and causes financial harm to the companies whose confidential information was used to benefit a few. Insider trading is a breach of fiduciary duty or another kind of relationship of confidence and trust. The person tipping, the one being tipped, and anyone who has access to the insider information that makes the trade can be charged with insider trading.

Read the SEC Complaint Against the McClellans, SEC

Wife of former Deloitte partner to pay $1 million, SFGate, October 18, 2011

FSA, SEC and DoJ investigation leads to two people being charged by the SEC with insider dealing in the U.S., Financial Services Authority, December 1, 2010


More Blog Posts:
Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

Dallas Mavericks Owner Mark Cuban's Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 28, 2011

Insider Trading: Former FrontPoint Partners Hedge Fund Manager Pleads Guilty to Criminal Charges, Institutional Investor Securities Blog, August 20, 2011

Continue reading "Former Deloitte Tax LP Partner’s Wife Settles Insider Trading Charges for $1M" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading , SEC Enforcement , Securities Fraud

October 26, 2011

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges

After surrendering to federal authorities today, Rajat Gupta has entered a not guilty plea to the criminal charges against him involving insider trading. Gupta, who was a former Proctor and Gamble and Goldman Sachs director, is accused of multiple counts of securities fraud and one count of conspiracy to commit securities fraud. He allegedly gave Galleon Group cofounder Raj Rajaratnam corporate secrets about Goldman. Our stockbroker fraud law firm has been following Rajaratnam’s criminal case on our blog site. (See below.) Earlier this month, he was sentenced to 11 years in prison over an insider trading scam that illegally garnered $63.8 million.

Gupta, who also once was a global head at McKinsey & Co., came under close scrutiny during Rajaratnam’s trial when he was brought up in testimony and phone conversations that were recorded in secret. He is also now facing civil charges with the Securities and Exchange Commission, which contends that he provided Rajaratnam with illegal tips about both Proctor and Gamble and Goldman Sachs’ quarterly earnings and an approximately $5 billion investment that Berkshire Hathaway was planning to make in the financial firm. Based on Gupta’s tips, Rajaratnam avoided losses of/made illegal profits of over $23 million. Rajaratnam made over 800,000 in illegal profits from the Berkshire Hathaway tip when, after first having Galleon funds buy over 215,000 Goldman shares, he ordered the liquidation of the Goldman holdings a day after the information and Goldman’s public equity offering became public.

Rajaratnam also made over $18.5 million in illegal profits for Galleon funds after Gupta allegedly told him that Goldman had positive 2008 second quarter financial results. Rajaratnam then had the hedge fund buy Goldman securities but liquidated them when Goldman made news of its earnings for that quarter public. Other charges stem from Gupta allegedly notifying Rajaratnam that fourth quarter results for that same year were negative. The Goldman holdings were sold off, allowing Rajaratnam to avoid over $3 million in losses. When Gupta allegedly tipped him about P & G's 2008 4th quarter earnings, Rajaratnam had Galleon funds sell short about 180,000 P & G shares, generating over $570,000 in illicit profits.

According to the SEC, Gupta got his confidential information from board conversations while serving as director at both companies. At the time, Gupta had numerous business ties with Rajaratnam and was seeking to strengthen that relationship. Not only had Gupta invested in Rajaratnam’s hedge funds, but they also began a number of financial ventures together.

The SEC had recently dropped its previous administrative action against Gupta over the insider trading allegations. Following that move, he vowed to drop his lawsuit claiming that the regulatory proceeding had violated his constitutional rights.

Of the 56 people that the government has charged with its crackdown on insider trading, 51 either were convicted or pleaded guilty.

With Gupta’s Arrest, Insider Inquiry Goes Beyond Wall St., Dealbook, October 26, 2011

SEC Files Insider Trading Charges against Rajat Gupta, SEC, October 26, 2011

Rajat Gupta, SEC Agree to Drop Galleon-Related Suit, Administrative Action, Bloomberg, August 5, 2011


More Blog Posts:
Galleon Group LLC Co-Founder Raj Rajaratnam Sentenced to 11 Years in Prison Over Insider Trading Scam, Stockbroker Fraud Blog, October 13, 2011

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investor Securities Blog, April 19, 2011

Dallas Mavericks Owner Mark Cuban's Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 18, 2011

Continue reading "Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Financial Firms , Goldman Sachs , Insider Trading

October 18, 2011

Dallas Mavericks Owner Mark Cuban's Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report

According to the US Securities and Exchange Commission’s Inspector General, billionaire Mark Cuban’s allegations of misconduct against the federal agency’s enforcement staff are unfounded. The Dallas Mavericks basketball team owner’s accusations stem from the insider trading case that the SEC had filed against him.

In its 2008 Texas securities lawsuit against Cuban, the SEC accused him of selling his stake in Mamma.com after being told in confidence that the search engine company was planning a private investment in public equity transaction. The PIPE transaction was likely going to cause the company’s stock to drop in value, and SEC says that although Cuban had agreed to keep the information confidential he went ahead and sold his shares. This caused him to avoid losing more than $750,000.

The Commission considered this a breach of his confidentiality agreement and an act of insider trading. The SEC based its insider trading theory against the billionaire on its rule defining duties of confidence and trust to include a person agreeing to keep information confidential. In 2009, a federal judge dismissed the case against Cuban on the grounds that he hadn’t been an “insider” in this instance.

Last year, however, the U.S. Court of Appeals for the Fifth Circuit in Texas revived the securities case against him. The court said it was “plausible” that Cuban knew he wasn’t supposed to sell his shares in order to avoid losing money. However, it refrained from deciding whether the billionaire entrepreneur was wrong to sell his stock. A lower court in Dallas has been ordered to review the case for additional discovery.

Cuban has responded with complaints to SEC Inspector General H. David Kotz. He contends that the enforcement agency’s lawyers treated him unfairly and had been “biased and improper.” He also claims that investigators abused the “Wells notice” process and sent one out before finishing his investigation, as well as intimidated one of his witnesses. Cuban also is accusing the SEC of closing its probe into Mamma.com to get the company’s executives to help in the agency’s investigation into the insider trading allegations against him.

Kotz’s office, in its 101-page report following its investigation into Cuban’s allegations against the SEC, said that there is not enough evidence to support the billionaire’s accusations. The OIG included also included its findings into the conduct of ex-SEC trial lawyer Jeffrey Norris, who was suspended after sending emails that may have been politically charged to Cuban (Norris was later fired for similar misconduct). Kotz’s office says that Norris hadn’t been involved in the SEC’s investigation into the Cuban case.

SEC lawsuit against billionaire Cuban revived, Salt Lake Tribune, September 21, 2010

US sports magnate charges against SEC unfounded, Reuters, September 17, 2011

Mark Cuban’s Grudge Match With the S.E.C., NY Times, April 30, 2011

SEC Watchdog Finds Little to Support Cuban's Allegations of Improper Conduct, BNA Securities Law Daily, October 3, 2011

Read the OIG Report (PDF)

Mamma.com

Related Web Resources:
After District Court Dismisses Texas Securities Fraud Against Billionaire Mark Cuban, SEC Appeal Can Now Move Forward, Stockbroker Fraud Blog, August 17, 2009

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investor Securities Blog, April 19, 2011

Houston Judge Overturns $9.2M Securities Fraud Ruling Against Morgan Keegan, Stockbroker Fraud Blog, October 11, 2011


Continue reading "Dallas Mavericks Owner Mark Cuban's Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading , Texas Securities Fraud

October 13, 2011

Galleon Group LLC Co-Founder Raj Rajaratnam Sentenced to 11 Years in Prison Over Insider Trading Scam

Raj Rajaratnam, a billionaire investor and co-founder of Galleon Group LLC, has been ordered to pay a $10 million fine and serve 11 years in jail for his key role in an insider trading scam that resulted in $63.8M in illegal profits. He must now forfeit $53.8M.

A jury had found the hedge fund tycoon guilty of nine counts of securities fraud and five counts of conspiracy. Rajaratnam would obtain illegal tips from bankers, executives, traders, consultants, and directors of public companies (Goldman Sachs is one). He would then use that insider information to make trades prior to public announcements about mergers, forecasts, earnings, and spinoffs involving a number of companies, including Hilton Hotels, Integrated Circuit, Akamai, and Xilinix)

Rajaratnam’s attorneys are planning to appeal. For now, however, they are requesting that he be confined at the Butner Federal Correctional Complex, which is where Bernard Madoff is in jail. Madoff was sentenced to 150 years behind bars for his multibillion-dollar Ponzi scam.

Rajaratnam, who is originally from Sri Lanka was educated in England and the US. He established the Galleon hedge fund in the 1990’s and it became one of the biggest in the world. In 2008, Galleon was managing about $7 billion.

Federal securities investigators began to suspect trouble when, in the Rajaratnam gave the SEC documents for another investigation into the activities of his younger brother—no charges were ever brought t here—a text message was included from an ex-Intel Corp. employee warning to hold off on purchasing Polycom’s stock. The former employee, Rommy Khan, was already suspected of giving out insider information.

In 2007, Khan consented to help the authorities with their probe. He and several others served as cooperating witnesses that helped the government convict Rajaratnam, who was arrested in 2009.

The 11-year sentence against him is shorter than the 24 years and five months that prosecutors wanted. That said, it is still the longest prison sentence ever issued for insider trading.

Still under investigation in connection with the scam is Rajat Gupta, who used to work as a Goldman Sachs director. According to the Wall Street Journal and Bloomberg, criminal charges against him seem likely. Prosecutors consider him a “co-conspirator” in the insider trading case against Rajaratnam.

The SEC, which dropped its civil administrative proceeding against Gupta, plans to refile its charges in federal court. Meantime, Kamal Ahmed, who was also linked to the insider trading scam, has been fired by Morgan Stanley because he had disclosed confidential information. The government has not accused him of wrongdoing.

The SEC also filed a number of securities lawsuits against at least two dozen individuals and businesses in light of the Galleon investigation.

Trader Draws Record Sentence, The Wall Street Journal, October 14, 2011

U.S. Prosecutors ‘Close to Charging’ Rajat Gupta, Bloomberg, September 20, 2011

Accused Rajaratnam Tipster Fired By Morgan Stanley, FIN Alternatives, October 7, 2011


More Blog Posts:
Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investor Securities Blog, April 19, 2011

A Texan is Among Those Arrested in Insider Trading Crackdown Involving Apple Inc., Dell, and Advanced Micro Devices' Confidential Data, Stockbroker Fraud Blog, December 16, 2010

3 Hedge Funds Raided by FBI in Insider Trading Case, Stockbroker Fraud Blog, November 23, 2010


Continue reading "Galleon Group LLC Co-Founder Raj Rajaratnam Sentenced to 11 Years in Prison Over Insider Trading Scam" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Financial Firms , Hedge Funds , Insider Trading

September 24, 2011

Measure Banning Insider Trading Gains Support of Congress Members

According to Bloomberg Businessweek, both Republicans and Democrats appear to be getting behind a House measure that forbids insider trading by lawmakers. The legislation would consider any trading on legislation done by lawmakers or their staffers as securities fraud. Also, trades over $1,000 would have to be reported within three months.

The measure mandates that regulators draft rules preventing intelligence firms and individuals from selling nonpublic data that they receive from federal employees. Individuals and firms taking part in political intelligence would have to register just the way federal lobbyists do.

US Senator Kirsten Gillibrand (D-NY)'s bipartisan legislation would revise the definition of insider trading to include information obtained from congressional work. Her bill also calls for new reporting requirements for transactions.

The issue of lawmakers engaging in insider trading grew after 60 Minutes reported that Congressional members purchased companies’ stock during debates on laws that could affect the businesses. The report said that the investments under scrutiny weren’t illegal. Following the airing of the CBS News program, however, the measure, which is called the STOCK (Stop Trading on Congressional Knowledge) Act and was first introduced in 2006, saw its number of co-sponsors rise to 171 House members.

Meantime, the Securities and Exchange Commissioning is cautioning against this type of insider trading ban for lawmakers over concern that this prohibition might narrow certain existing laws. SEC Enforcement Director Robert Khuzami cautioned that any revisions should be “carefully calibrated” so that insider trading prosecutions that don’t involve Congressional members are not negatively impacted. Currently, the SEC uses general anti-fraud provisions to pursue those engaged in insider trading. These laws have never been applied to prosecuting lawmakers.

Rather than a congressional insider trading ban, Khuzami suggested the establishment of an explicit fiduciary obligation among Congress members to keep information obtained while on the job confidential and off limits for purposes of personal gain. General duty would then be used to pursue those that engage in insider trading.

House and Senate panels are expected to vote on an insider-trading ban, possibly as early as next year. The House Financial Services Committee and the Senate Homeland Security and Governmental Affairs Committee will vote on the STOCK Act this year.

Our stockbroker fraud attorneys work victims of insider trading. We have successfully helped thousands of investors throughout the country in recouping their money. We also have represented investors located abroad that have claims against investment firms based in the US.

Congressional Insider-Trading Ban Gains Bipartisan Support, Bloomberg Businessweek, December 7, 2011

SEC warns on congressional insider trading ban, Reuters, December 6, 2011


More Blog Posts:
Fiduciary Standard in Securities Industry Doesn't Need New Definition, Stockbroker Fraud Blog, November 26, 2010

Hedge Fund Manager Raj Rajaratnam Ordered by SEC to Pay $92.8M Penalty for Insider Trading, Stockbroker Fraud Blog, November 12, 2011

Insider Trading: Former FrontPoint Partners Hedge Fund Manager Pleads Guilty to Criminal Charges, Institutional Investor Securities Blog, August 20, 2011

**This post has been backdated for publication

Continue reading "Measure Banning Insider Trading Gains Support of Congress Members" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading , Legislation

August 23, 2011

California Insider Trading Charges Filed by SEC Against Ex-Investment Fund Associate Accused of Making 3000% Profit on Marvel Call Options in Disney Acquisition

The Securities and Exchange Commission has filed insider trading charges against Toby G. Scammell, who is accused of making more than $192,000 from insider trading information he received from his girlfriend about Walt Disney Company’s impending acquisition of Marvel Entertainment. Scammell, a 26-year-old ex-investment fund associate, made a more than 3000% profit in less than a month after he bought highly speculative Marvel call options for under $5500 and then sold them after the announcement of the acquisition was made on August 31, 2009 and Marvel’s stock price went up by more than 25%.

According to the SEC, Scammell’s girlfriend, who worked on the Marvel deal as an extern with Disney, found out confidential information about the deal, including when it would be announced and that Disney would pay $50/Marvel share. The Commission, however, doesn’t believe that Scammell’s girlfriend ever intended to give him insider tips or that she knew what he was doing with the information. Although the couple would talk about the acquisition as a subject of her business school application, she did not give him specific details. He also allegedly obtained information from confidential documents that he read off her Blackberry and from conversations he overheard regarding Marvel.

Scammell bought Marvel call options at $45 and $50 strike prices even though the highest that Marvel had ever traded at was $41.74. The SEC says that the Marvel options that Scammell bought were scheduled to expire soon after the Disney deal was announced and that in many cases the purchase of options represented 100% of the market. Scammell used his brother’s money to buy most of the Marvel call options. He did not, however, tell him about the alleged insider trading activities. Scammell’s brother had given him authority over his finances before going with the US army to Iraq.

The SEC says that before making the trades, Scammell used his computer to search for the terms “material non-public information,” “insider trading”, and “Rule 10b-5.” The Commission claims that Scammell not only used the insider information to garner an “unfair and illegal” advantage over others in the markets but that he exploited his romantic relationship with his girlfriend. The SEC says that after dating her exclusively for two years, he owed her a fiduciary duty, which he breached. He also allegedly acted with Scienter when he made the trades while having knowledge of the material, nonpublic data. The SEC says that when questioned, Scammell was unable to provide a believable explanation for his Marvell call options purchases.

The SEC is accusing Scammell of violating the Securities Exchange Act of 1934 (Section 10(b)) and Rule 10b-5 thereunder. It is seeking disgorgement of ill-gotten gains, a permanent injunction, prejudgment interest, and civil penalties.

SEC CHARGES FORMER INVESTMENT FUND ASSOCIATE WITH INSIDER TRADING, SEC, August 11, 2011

Read the SEC Complaint (PDF)

SEC Sues 26-Year Old On Charges He Made $200,000 Insider Trading Off Ex-Girlfriend's Work Project, Business Insider, August 15, 2011



More Blog Posts:
Janney Montgomery Scott LLC to Pay $850K to Settle Securities Charges Over Alleged Failure to Prevent Inside Trading, Stockbroker Fraud Blog, July 21, 2011

“Poohster” Consultant Found Guilty of Insider Trading, Stockbroker Fraud Blog, June 23, 2011

Insider Trading: Former FrontPoint Partners Hedge Fund Manager Pleads Guilty to Criminal Charges, Institutional Investor Securities Blog, August 20, 2011

Continue reading "California Insider Trading Charges Filed by SEC Against Ex-Investment Fund Associate Accused of Making 3000% Profit on Marvel Call Options in Disney Acquisition" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading , SEC Enforcement , Securities Fraud

July 21, 2011

Janney Montgomery Scott LLC to Pay $850K to Settle Securities Charges Over Alleged Failure to Prevent Inside Trading

Janney Montgomery Scott LLC has consented to pay $850,000 to resolve Securities and Exchange Commission charges that it failed to set up and enforce policies to prevent possible insider trading. The financial services firm also agreed to cease from further violations of laws that prevent the misuse of material, nonpublic information that could be used for insider trading. Even with the securities settlement, however, Janney is not admitting wrongdoing.

According to regulators, between January 2005 and July 2009, there were occasions when Janney’s Equity Capital Markets division did not enforce policies. Some of these failures, which created the risk that certain information could be used for insider trading, included:

• Failure to comply with written procedures.
• Not properly monitoring trading in securities belonging to companies that Janney’s investment bankers were advising.
• Not requiring that investment bankers obtain clearance for personal trades prior to making them.
• Failing to get yearly questionnaires identifying employees who had brokerage counts at other financial firms.
• Not reviewing these employees’ activities at these other firms.

Also per the settlement, Janney will retain an independent compliance consultant who will make recommendations about how to comply with laws pertaining to material, nonpublic information.

Insider Trading and Securities Fraud Enforcement Act of 1988
Under this act, firms must implement policies and procedures to prevent insider trading from happening and ensure that employees are aware of these immediately upon hiring. These policies and procedures have to be formal.

It is a firm's responsibility to ensure that these policies are followed. They must conduct reviews of employees and proprietary trading, while monitoring employee trading that doesn’t involve the firm. If a firm suspects possible insider trading, it must immediately investigate the allegations.


Related Web Resources:
Janney Montgomery Scott To Pay $850K To Settle SEC Charges, RTT News, January 11, 2011

Janney Montgomery Scott settles SEC charges, Bloomberg/Business Week/AP, July 11, 2011

SEC Charges Janney Montgomery Scott Failed to Maintain and Enforce Policies to Prevent Misuse of Material, Nonpublic Information, SEC, July 11, 2011


More Blog Posts:
“Poohster” Consultant Found Guilty of Insider Trading, Stockbroker Fraud Blog, June 23, 2011

3 Hedge Funds Raided by FBI in Insider Trading Case, Stockbroker Fraud Blog, November 23, 2010

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investors Securities Blog, April 19, 2011

Continue reading "Janney Montgomery Scott LLC to Pay $850K to Settle Securities Charges Over Alleged Failure to Prevent Inside Trading " »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Financial Firms , Insider Trading , Janney Montgomery Scott

June 23, 2011

“Poohster” Consultant Found Guilty of Insider Trading

Winifred Jiau, a Fremont, California consultant, has been convicted of insider trading and conspiracy. The network consultant was accused of selling technology company secrets to hedge fund traders for hundreds of thousands of dollars. The trial against Jiau was the first one involving an expert network firm. Primary Global Research in Mountain View employed her.

Expert networks reportedly connect hedge fund mangers and “consultants,” who are usually insiders at publicly traded companies, for a price. At least seven people linked to PGR have been charged with insider trading crimes.

According to Manhattan US Attorney Preet Bharara, Winnie Jiau exploited friends at public companies so she could get and then sell insider information. Noah Freeman, the government’s central witness and an ex- SAC Capital Advisors hedge fund portfolio manager who has pleaded guilty to his involvement, testified that she gave him illegal stock tips. He says that not only did he and his co-conspirators pay her $120,000 annually, but also she expected them to give her presents, which included iPhones, gift certificates, and lobsters. Those who paid her off received reaped substantial rewards. One hedge fund manager says that the tips he received were usually more “accurate” and “detailed” than any source and that the insider information allowed him to make $5 million to $10 million.

Some of Jiau’s hedge fund clients reportedly called her “the Poohster” after Winnie the Pooh, the fictitious bear that is always looking for a honey pot. Also, she reportedly used the code word “sugar” in emails and instant messages to refer to her payoffs. She called her tipsters “cooks" and her tips “recipes.”

Related Web Resources:
Expert Network Consultant is Convicted in Insider Trading Case, NY Times, June 20, 2011

Bay Area inside trader, Winifred Jiau, convicted, SF Gate, June 21, 2011



More Blog Posts:
Day Trader Pleads Guilty to Securities Fraud Charges Related to Insider Trading Scam, Stockbroker Fraud Blog, May 25, 2011

Motion to Dismiss SEC Lawsuit Accusing Dallas Billionaire Brothers of $500,000 Securities Fraud Denied, Stockbroker Fraud Blog, April 1, 2011

Guilty Plea for Financial Adviser Who Used UBS Tips in $1M Healthcare Insider Trading Scheme, Stockbroker fraud Blog, January 28, 2011

Continue reading "“Poohster” Consultant Found Guilty of Insider Trading" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Hedge Funds , Insider Trading

May 25, 2011

Day Trader Pleads Guilty to Securities Fraud Charges Related to Insider Trading Scam

Day trader Daniel Corbin has pleaded guilty to a securities fraud charge accusing him of conspiring to make illegal trades based on confidential tips from the wife of an ex-Lehman Brothers salesman. He was one of five people indicted over this insider trading scam in 2008 and the last to plead guilty.

Corbin says that it was his partner, Jamil Bouchareb, who gained access to the material non-public information about Veritas DGC Inc. The information came from ex-Lehman Brothers salesman Matthew Devlin whose wife Nina Devlin worked at the public relations company Brunswick Group LLC at the time and had access to information about mergers and other deals. Devlin gave away that information without her consent.

Following the insider tip, Corbin and Bouchareb used their joint account to purchase 2,500 shares of the company on September 1, 2006. On September 5, 2006, Compagnie Generale de Geophysique SA purchased Veritas DGC. Corbin and Bouchareb made a $16,000 profit from the trade.

In federal court last week, Corbin told the US Magistrate Judge that he suspected that the information Bouchareb obtained wasn’t public but still went along with his partner. Bouchareb was among those who were indicted and pleaded guilty, as did Devlin, who pleaded guilty to one count of securities fraud and four counts of conspiracy over the improper sharing of information, ex-Lehman salesman Frederick Bowers, and tax attorney Eric Holzer, who used to work at Paul Hastings Janofsky & Walker LLP.

Our stockbroker fraud lawyers represent clients that have sustained financial losses because of insider trading, stockbroker fraud, and other forms of broker misconduct, including margin account abuse, unsuitability, churning, misrepresentation and omissions, failure to execute trades, unsuitability, failure to supervise, breach of fiduciary duty, breach of promise/contract, margin account abuse, negligence, unauthorized trading, and registration violations.

Trader Daniel Corbin Pleads Guilty in New York Federal Court, Bloomberg Businessweek, May 16, 2011

Florida Trader Pleads Guilty in '06 Insider-Trading Scheme, The Wall Street Journal, May 16, 2011


More Blog Posts:
Motion to Dismiss SEC Lawsuit Accusing Dallas Billionaire Brothers of $500,000 Securities Fraud Denied, Stockbroker Fraud Blog, April 1, 2011

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investors Securities Blog, April 19, 2011

Guilty Plea for Financial Adviser Who Used UBS Tips in $1M Healthcare Insider Trading Scheme, Stockbroker Fraud Blog, January 28, 2011

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading

April 1, 2011

Motion to Dismiss SEC Lawsuit Accusing Dallas Billionaire Brothers of $500,000 Securities Fraud Denied

A district court has denied Charles and Samuel and Wyly’s motion to dismiss the SEC lawsuit accusing them of insider trading and running a 13-year securities fraud that generated $550 million in undisclosed gains. U.S. District Judge Shira Scheindlin says that the SEC did an adequate job of alleging the Texas billionaire brothers’ liability for fraud. She also said the federal agency adequately pled the concealment of sales in Michaels Stores Inc, Sterling Software, Scottish Annuity & Life Holdings Ltd., and Sterling Commerce Inc.

Last year, the SEC accused the brothers of setting up sham offshore trusts in the Cayman Islands and the Isle of Man to hide 13 years of stock sales, valued at over $750 million, in four companies that they founded.

The allegations were made following a six-year investigation. The SEC contends that with their improper gains, the brothers were able to acquire almost $100 million of real estate, purchase tens of millions of dollars in jewelry, art, and collectibles, and donate a great deal of money to charity. The agency also claims that the brothers either knew or were reckless if they didn’t know what their legal obligations were as public company owners directors and beneficial owners who owned more than 5%. Under the law, such persons have to report trading and holdings in their companies securities on Form 4 and Schedule 13D to the SEC. The SEC says that the brothers either knew or should have known that such disclosures are used by the investing public to get a sense of how a public company’s shareholders and insiders feel about prospects and financial conditions and that they depend on these disclosures to make investment decisions.

Judge Scheindlin also said that the SEC can pursue a claim accusing Dallas-based brothers of making $31.7 million from the alleged insider trading that they engaged in after they decided to sell Sterling Software in 1999.

Related Web Resources:
Billionaire Wyly Brothers Lose an Effort to Dismiss Insider-Trading Charges, NY Times, April 1, 2011

Wyly brothers lose bid to dismiss SEC fraud suit, Reuters, March 31, 2011

SEC Charges Corporate Insider Brothers With Fraud, SEC, July 29, 2010

Billionaire Brothers Samuel and Charles Wyly Charged With $550 Million Fraud, Daily Finance, July 30, 2010


More Blog Posts:
FBI Arrests Texas Leader of Pump-and-Dump Scheme, Stockbroker Fraud Blog, March 23, 2011

Dallas-Based Southwest Securities Settles for $500,000 FINRA Charges It Improperly Used Paid Consultants, Stockbroker Fraud Blog, March 17, 2011

Texas Securities Fraud: SEC Halts Alleged Ponzi Scheme in the Dallas-Fort Worth Area, Stockbroker Fraud Blog, March 2, 2011

Continue reading "Motion to Dismiss SEC Lawsuit Accusing Dallas Billionaire Brothers of $500,000 Securities Fraud Denied" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Insider Trading , Texas Securities Fraud

Call for a Free Consultation
(800) 259-9010

Contact Us

The code above is for the protection of your information.

Browse

  • Topics
  • By Date
  • Search
Topics
By Date
Search

Recent Entries

Legal Blogs