October 23, 2014

Rajaratnam Brother Settles Insider Trading Charges Involving Hedge Fund Advisory Firm Galleon Management

Rajarengan “Rengan” Rajaratnam, the brother of Raj Rajaratnam, has consented to pay over $840,000 to settle insider trading charges filed, against him by the U.S. Securities and Exchange Commission. Rengan, who has not admitted to or denied wrongding, also has agreed to an industry bar. A court must still approve the settlement.

Rengan was a portfolio manager at Galleon. He also co-founded Sedna Capital Management, which is another hedge fund advisory firm. Raj was convicted of insider trading in 2011.

It was in 2013 that the SEC filed charges against him for his involvement in the insider trading scam conducted by his brother Raj and Galleon Management.

According to the Commission from 2006 to 2008 Raj, who was a Galleon founder, repeatedly gave Rengan insider data. The latter made over $3 million in illicit gains for himself and the funds that he managed at Sedna Capital and Galleon. Rengan also purportedly worked with his brother to nurture highly-placed sources and obtain confidential information so that they would benefit over other traders. Some of his illicit trades are said to have involved securities of Hilton Hotels, Akamai Technologies, Polycom and others. Rengan, however, was acquitted in the criminal case against him.

The financial scheme involved securities in over 15 companies that resulted in illicit gains of close to $100 million. To date, the regulator has settled or obtained court order judgments in enforcement actions related to the Galleon fraud against 35 defendants. Some $165 million in monetary sanctions have resulted thus far.

Rajaratnam’s Brother Settles SEC Lawsuit for $841,000, Bloomberg, October 23, 2014

Rengan Rajaratnam's Prosecutors Had Concerns About the Case, The Wall Street Journal, July 9, 2014

Read the SEC Complaint Charging Rengan with Insider Trading (PDF)


More Blog Posts:
Galleon Group Founder’s Brother Pleads Not Guilty to Insider Trading, Institutional Investor Securities Blog, April 2, 2013

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

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

May 23, 2014

Insider Trading Headlines: Principal of Wynnefield Capital Now On Trial, Ex-Vitamin Company Board Member Settles His Case, and Clinical Drug Trial Doctors Face Charges Related to New Cancer Drug

Wynnefield Capital Inc. Principal On Trial in SEC Insider Trading Case
Nelson Obus, the principal of Wynnefield Capital Inc., is accused of engaging in insider trading to make his hedge fund $1.3 million. The U.S. Securities and Exchange Commission says that he confessed twice that he received a tip that SunSource Inc. was going to be put up for sale. One of the confessions was purportedly to the CEO of SunSource.

In 2001, SunSource announced it was going to be bought by Allied Capital Corp. It’s stock price then doubled. Obus, who had purchased stock in the company, made $1.3 million.

The regulator is also suing ex-GE capital undewriter Brad Strickland and Peter Black, an ex-analyst for Winnyefield. The agency believes Strickland gave Black the tip. The latter then sent the information to Obus. They’ve denied any wrongdoing.

The insider trading case, which the SEC brought in 2006, was initially thrown out by US District Judge George Daniels. A federal appeals court revived the securities case in 2012. Now, Judge Daniels is once again presiding over the case.

The Commission wants to ban the defendants from working as public company directors and officers. It is also seeking penalties.


Ex-NBTY Inc. Board Member and Relatives Settles Insider Trading Charges for Over $500,000
Glenn Cohen, a board member of vitamin company NBTY Inc., has settled SEC charges accusing him of insider trading along with other family members. According to the Commission, Cohen gave his three brothers, Craig Cohen, Steven Cohen, and Marc Cohen, and Laurie Topal the confidential data that NBTY Inc. was working on the terms of its sale by The Carlyle Group. They made illicit profits of $175,000 and are settling for over $500,000.

Aside from the financial penalties, Glenn Cohen is barred from taking on the role of director or officer in a public company. By settling, the Cohens and Topal are not denying or admitting to the SEC charges.


Clinical Trial Doctors Involved In Testing of New Cancer Drug Are Accused of Insider Trading
Dr. Franklin M. Chu and Dr. Daniel J. Lam are now facing insider trading charges accusing them of illegally trading on the knowledge that the Food and Drug Administration had stopped clinical trials of Capesaris, the prostate cancer drug that GTx Inc. was developing. The SEC believes that when the share price dropped by more than 36%, doctors avoided substantial losses because they'd sold their stocks in GTx.

Lam and Chu have agreed to settle the SEC charges, which also accuse them of making over $45,000 in illicit profits. They will collectively pay $116,864.


SEC Charges Two Clinical Drug Trial Doctors With Insider Trading, SEC.gov, May 19, 2014

Read the SEC Complaint Against the Cohens and Topal (PDF)

Wynnefield’s Obus Traded on Inside Tip, SEC Says in Trial, Bloomberg/Businessweek, May 20, 2014


More Blog Posts:
Insider Trading Roundup: Lawson Software Founders Pay $5.8M to Settle SEC Allegations, Three Sales Managers Face SEC Charges, and Kentucky Mayor Will Turn Over Illicit Profits, Stockbroker Fraud Blog, May 16, 2014

Former Morgan Stanley Broker and Two Others Allegedly Ran $5.6M Insider Trading Scam, Swallowed The Information, Stockbroker Fraud Blog, March 19, 2014

FBI Probes Possible High-Speed Trading, Insider Trading Link, Institutional Investor Securities Blog, April 1, 2014

May 16, 2014

Insider Trading Roundup: Lawson Software Founders Pay $5.8M to Settle SEC Allegations, Three Sales Managers Face SEC Charges, and Kentucky Mayor Will Turn Over Illicit Profits

Lawson Software Founders Resolve SEC Insider Trading Case
Richard Lawson, his brother William, and John Cerullo have agreed to pay $5.8 million to resolve U.S. Securities and Exchange Commission allegations that they engaged in insider trading prior to the merger between Lawson Software Inc. and two companies: Info Global Solutions and a Golden Gate Capital affiliate. The three men founded the software company.

According to the insider trading case, Richard tipped William and Cerullo that despite media and analyst reports the company was not the focus of a bidding war. This resulted in their selling of 1.8 million in company shares at prices that were inflated because of the speculation. They purportedly made illicit profits of $2 million when they sold the shares.

Now, Richard has consented to pay a $1.56 million fines. William, the former CEO of Lawson Software, will pay $3.87 million. Cerullo will pay $374,000. By settling, they are not denying or admitting to the securities fraud charges.


Three Ex-Qualcomm Inc. Sales Managers Face Insider Trading Charges
The SEC is charging Robert Herman, Derek Cohen, and Michael Fleischli with engaging in insider trading . The three men were former sales managers at Qualcomm Inc.

They are accused of buying stock in Atheros Communications securities after finding out during a sales meeting that their employer was negotiating to acquire Atheros. When the two companies finally announced the deal, the three men sold their securities and profited.

The regulator says that Cohen made over $200,000 in illegal profits, while Herman profited $30,000 and Fleischli made $3,000. They are charged with violating the Securities and Exchange Act of 1934’s Section 10(b) and Rule 10b-5. U.S. Attorney’s Office for the Southern District of California has filed a parallel action against Herman and Cohen to announce criminal charges.


Ft. Mitchell, Kentucky Mayor To Pay Penalty and Turn over Insider Trading Profits
Chris Wiest, the mayor of Fort Mitchell, Kentucky, has resolved the SEC insider trading allegations. He is accused of buying 35,000 shares of InfoLogix stock because he received information that the company was going to be acquired by Stanley Black & Decker. At the time, Wiest was an attorney involved in the deal, which had not been announced yet. In December 15, 2010, Stanley purchased InfoLogix for $61 million.

The SEC says that Wiest purchased the common stock in his brokerage account for his retirement plan, paying prices from $1.95 to $2.84 over a period of nearly two months prior to the deal. He sold a significant number of shares a day after news of the acquisition was made public.

By settling Wiest is not denying or admitting to the charges. He will pay back the $56,292 he made in trading profits plus prejudgment interest and a penalty.

SEC v. Cohen, Fleischli, and Herman (PDF)

SEC v. Lawson, Lawson, and Cerullo (PDF)

In the Matter of Christopher Wiest, Respondent (PDF)


More Blog Posts:
Jury Says Wyly Brothers From Texas Committed Fraud, Stockbroker Fraud Blog, May 14, 2014

Former Morgan Stanley Broker and Two Others Allegedly Ran $5.6M Insider Trading Scam, Swallowed The Information, Stockbroker Fraud Blog, March 19, 2014

SAC Capital Advisors LP Expected to Plead Guilty to Insider Trading Criminal Charges, Institutional Investor Securities Blog, October 31, 2013

May 14, 2014

Jury Says Wyly Brothers From Texas Committed Fraud

A jury says that the wealthy Texas billionaire brothers Charles and Samuel Wyly committed fraud by setting up a secret scam using offshores trusts and making $550M in illegal trading profits. The Texas securities ruling of liability is based on claims brought by the U.S. Securities and Exchange Commission.

The civil trial occurred following years of probes and litigation by the SEC and others. While the Wylys (Charles died in a 2011 car crash) admitted to setting up trusts on the Isle of Man for tax benefits, asset protection, and estate planning, they have denied wrongdoing. The brothers maintained that they were under no obligation to disclose the trusts because legally they weren’t the beneficial owners of the securities in them. They said that they relied on an “army of lawyers” to make sure their activities were in compliance with the law.

The SEC said the Wylys set up the trusts to hide trading that took place between 1992 and 2004 in four companies. The brothers were the boards of these four entities.

During the trial, a number of witnesses testified that the Wylys were in control of the trusts and that trustees were required to follow their orders. The Commission claims that the brothers used their improper gains to purchase $100 million of real estate and tens of millions of dollars in jewelry and art and other items, as well as make substantial charity donations. It wants the Wylys to pay penalties and give back the $550 million in allegedly illegal gains.

Commenting on the jury verdict, SEC Division of Enforcement Director Andre Ceresney said that the agency would continue to hold accountable fraudsters regardless of their scam’s complexity or efforts to conceal their wrongdoing. The regulator, however, isn’t done with the Wylys.

The SEC claims they made $31.7 million from insider trading in Sterling Software after the company was sold in 1999. A U.S. district court judge will decide those claims and whether there will be any penalties.

Shepherd Smith Edwards and Kantas, LTD LLP is a Texas securities fraud law firm.

Wyly brothers hid assets, jury rules, Dallas Morning News, May 12, 2014

Read the SEC Complaint (PDF)


More Blog Posts:
State Senator Reprimanded For Violating the Texas Securities Act, Stockbroker Fraud Blog, May 8, 2014

$550M Securities Fraud Case Between Texas’ Wyly Brothers & SEC Goes to Trial
, Stockbroker Fraud Blog, April 2, 2014

DOJ’s Fund for Madoff Victims Has Received 51,700 Claims Worth $40B, Institutional Investor Securities Blog, May 14, 2014

March 19, 2014

Former Morgan Stanley Broker and Two Others Allegedly Ran $5.6M Insider Trading Scam, Swallowed The Information

In an alleged insider trading scam that could have been ripped out of the plot of a movie, prosecutors are accusing three men of engaging in methods of spycraft, including eating the evidence, as they ran an insider trading racket that netted about $5.6 million. The information they used was purportedly obtained from Simpson Thacher & Bartlett, LLP, which is the premier mergers-and-acquisitions law practice in New York. The firm is known for its work involving mergers and acquisitions and private equity.

Prosecutors say that Steven Metro, a managing clerk at the law firm, used his employer’s computer system to gather information about deals and other corporate developments involving clients. He then shared the information, which, according to The Wall Street Journal, included data about Tyco International Ltd.’s intentions to purchase Brink’s Home Security Holdings Inc., as well as the Office Dept. Inc. Office Max Inc. merger, with an unnamed mortgage broker during coffee shop and bar meetings. That person then allegedly gave the info to broker Vladimir Eydelman, who until recently, was with Morgan Stanley (MS) (and before that (Oppenheimer & Co. (OPY)) Edylman, 42, then traded on the data.

Metro and Eydelman were arrested this week and then released on $1 million bond. They face numerous criminal charges, including securities fraud. Meantime, the unnamed mortgage broker is working with prosecutors and is expected to consent to a plea deal.
Both Morgan Stanley & Oppenheimer are also cooperating in the probe.

Beginning in 2009, Metro and the unnamed broker would meet with friends for drinks. The unnamed broker and Eydelman would then meet by the large clock at Grand Central. A piece of paper with the stock trading symbol of the company would allegedly be flashed between them and then eaten once the data was memorized. Eydelman also allegedly set up a fake paper trail and “contrived emails” with information to make it seem as if the illegal trades were legitimate.

Shepherd Smith Edwards and Kantas, LTD LLP represents securities fraud victims in getting back their losses. Contact our investment fraud lawyers today.

U.S. Alleges Inside Traders Used Spycraft, Ate Evidence, The Wall Street Journal, March 19, 2014

Morgan Stanley Broker Charged in Post-It Insider Scheme, Bloomberg, March 19, 2014


More Blog Posts:
JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam, Stockbroker Fraud Blog, January 25, 2014

JPMorgan To Pay $2.6B in Penalties in Bernard Madoff Ponzi Scam Settlements, Stockbroker Fraud Blog, January 7, 2014

SAC Capital Advisors LP Expected to Plead Guilty to Insider Trading Criminal Charges, Institutional Investor Securities Blog, October 31, 2013

January 25, 2014

JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam

The Financial Industry Regulatory Authority is barring J.P. Morgan Securities, LLC (JPM) vice president David Michael Gutman and ex-Meyers Associates LP Christopher John Tyndall from the securities industry for their alleged involvement in an insider trading scheme. According to the self-regulatory organization between March 2006 and October 2007, Gutman, who works in the firm’s conflicts office, improperly shared information with Tyndall that was non-public and material about at least 15 pending corporate merger and acquisition transactions

Tyndall then purportedly used the data to trade before at least six corporate announcements and recommended that customers and friends invest in the stock too. Tyndall and Gutman are longtime friends. The latter found out about the transactions from his job.

The inside information that Gutman provided Tyndall had to do with acquisitions involving Genesis HealthCare Corporation, American Power Conversion Corporation, First Data Corporation, Alliance Data Systems Corporation, SLM Corporation (Sallie Mae), and Cytyc Corporation. By settling, Tyndall and Gutman are not denying or admitting to the securities charges.

Insider Trading
Illegal insider trading happens when the trade is made using nonpublic, material information about a security. Often, there may be a tipster who provides the insider information to the person who makes the trade or the person with access to the nonpublic, material information may be the person who also makes the trade. Regulators have brought insider trading cases against directors, corporate officers, brokers, investment advisers, and others.

Shepherd Smith Edwards and Kantas, LTD LLP represents investors with securities fraud claims and lawsuit. Contact our securities law firm today.

FINRA Bars J.P. Morgan Vice President and Broker Friend in Insider Trading Scheme, FINRA, January 16, 2014

Insider Trading, SEC.gov


More Blog Posts:

JPMorgan To Pay $2.6B in Penalties in Bernard Madoff Ponzi Scam Settlements, Stockbroker Fraud Blog, January 7, 2014

JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations, Institutional Investor Securities Blog, September 19, 2013

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

December 23, 2013

Ex-SAC Capital Manager Steinberg is Convicted of Securities Fraud & Insider Trading

A federal jury has convicted former SAC Capital portfolio manager Michael Steinberg for insider trading, conspiracy, and securities fraud. Prosecutors contend that he traded on confidential information that he received from another employee.

Steinberg is one of eight employees at the hedge fund’s Sigma Capital Management division charged with insider trading and the first to go to trial. Six of the others pleaded guilty, including SAC analyst Jon Horvath, who prosecutors said is the one that gave Steinberg the nonpublic information. Horvath, who turned witness for the prosecution, has admitted to exchanging illegal tips with people at different firms. He said that Steinberg pressured him to provide “proprietary” information about technology stocks.

Steinberg is accused of making a number of trades, including ones before Dell’s earnings report in August 2008 went out. He reportedly netted $1 million in trades from this after he started shorting the computer company’s stock following a tip that Dell’s gross margins would fall short of Wall Street’s expectations. Similar tips that Steinberg received about Nvidia reportedly netted the hedge fund over $400,000.

Steinberg’s conviction comes just one month after SAC Capital Advisors, which Steven A. Cohen owns, pleaded guilty to securities fraud and wire fraud related to insider trading in criminal court. The hedge fund will pay at least $1.2 billion in fines and is being converted into an office that will just manage about $9 billion of Cohen’s own fortune. Although Cohen has not been criminally charged, the Securities and Exchange Commission did file a securities case accusing him of failing to reasonably supervise employees.

Still waiting for his trial is Mathew Martoma, the seventh SAC employee accused of insider trading. Last week, a federal judge turned down the ex- SAC Capital Advisors LP portfolio manager’s request for the dismissal of some of the insider trading charges against him.

Some of his trades were allegedly made in American depository receipts of Elan Corp. ELN.I, which is an Irish drugmaker. While Martoma argued that US securities law did not cover these transactions, U.S. District Judge Paul Gardephe said that they did. Gardephe, therefore, did not toss out one of the two securities charges against him, as well as a conspiracy count.

Prosecutors claim that Martoma played a role in SAC affiliate CR Intrinsic Investors avoiding $276 million in losses five years ago by recommending that it sell Wyeth and Elan shares. The recommendation purportedly came from tips regarding the poor trial outcomes for a diabetes drug.

Securities Fraud
If you are an investor that suspects your losses are due to insider trading, please contact Shepherd Smith Edwards and Kantas, LTD LLP today. Our insider trading fraud lawyers represent investors throughout the US.

Ex-SAC trader is convicted of insider trading, NY Times, December 18, 2013

Ex-SAC manager Martoma fails to end part of insider case, Reuters, December 17, 2013


More Blog Posts:
SAC Capital Advisors to Pay $1.2B Penalty, Pleads Guilty to Insider Trading Violations, Stockbroker Fraud Blog, November 4, 2013

SAC Capital Advisors LP Expected to Plead Guilty to Insider Trading Criminal Charges, Institutional Investor Securities Blog, October 31, 2013

SEC Charges SAC Capital Hedge Fund Adviser Stephen Cohen With Failure to Stop Insider Trading, Institutional Investor Securities Blog, July 20, 2013

November 4, 2013

SAC Capital Advisors to Pay $1.2B Penalty, Pleads Guilty to Insider Trading Violations

SAC Capital Advisors is the first large Wall Street firm in a very long time to plead guilty to criminal behavior. The insider trading violations come with a $1.2 billion penalty. SAC is owned by billionaire Steve Cohen.

In addition to the fine and guilty plea, federal prosecutors in Manhattan will place the fund on probation for five years and it will no longer be allowed to manage outside investors’ money. Issuing its own statement, SAC said it is taking responsibility for the “handful” of individuals in the firm that pled guilty to insider trading and whose misconduct resulted in the fund’s liability. However, it pointed out, these men made up a “tiny fraction” of the firm and are not reflective of the 3,000 people that have worked there over the last two decades.

Cohen has not been criminally charged. However, the plea agreement is a stain on his reputation and what was once considered a stellar investment track record. The fund has posted average yearly returns of close to 30% since 1992. Now, SAC’s admission that a number of its employees traded stocks because of their access to secret information will always call his success into question.

It was just three months ago that a grand jury indicted SAC for allowing a “systematic” insider trading scam to take place for over a decade—from 1999 through 2010. Eight ex-SAC traders were charged with securities fraud. Six of them pleaded guilty and are cooperating with prosecutors. The other two are about to go on trial.

Earlier this year, SAC agreed to pay federal regulators $616 million in fines over two insider trading cases. The $602 million fine was imposed upon SAC unit Intrinsic Investors because over more than $275 million in profits and losses related to insider information about an Alzheimer’s drug trial. Stocks in pharmaceutical companies Wyeth Pharmaceuticals and Elan Corp. were traded. SAC unit Sigma Capital Management was ordered to pay a $14 million fine for insider trading involving Nvidia Corp. and Dell Inc. stocks. The two portfolio managers involved in these cases allegedly made profits and avoided losing trades in the tens of millions of dollars.

Still yet to be resolved is the civil action filed by the Securities and Exchange Commission against Cohen for this latest insider trading debacle. The regulator is accusing him of ignoring the misconduct that was taking place at SAC. The New York Times says that according to sources the SEC wants to bar Cohen from ever managing money again. (Right now, all of the fund’s investors have taken their money out of SAC—leaving about $9 billion under its management. The money primarily belongs to Cohen and his employees.)

Also, criminal authorities are continuing to investigate the billionaire and other SAC employees, and FBI agents are still looking at the hedge fund’s trading records and seeking more informants. The government has been looking into widescale insider trading allegations within the industry for some time now. Already, there have been over 70 convictions.

SAC Capital Pleads Guilty to Insider Trading, NY Times, March 15, 2013

SAC Hit With Record Insider Penalty, The Wall Street Journal, March 15, 2013


More Blog Posts:
SEC Charges SAC Capital Hedge Fund Adviser Stephen Cohen Faces With Failure to Stop Insider Trading, Institutional Investor Securities Blog, July 20, 2013

New Stream Capital LLC Hedge Fund Executives Face Criminal Securities Fraud Charges, Stockbroker Fraud Blog, February 28, 2013

Hedge Fund Manager Philip Falcone Consents to $18M Securities Fraud Settlement, Institutional Investor Securities Blog, May 16, 2013

Continue reading "SAC Capital Advisors to Pay $1.2B Penalty, Pleads Guilty to Insider Trading Violations" »

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

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" »

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

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

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

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" »

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" »

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" »

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" »

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 " »

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" »

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" »