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" »

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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" »

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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 " »

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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" »

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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" »

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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" »

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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 " »

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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" »

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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" »

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Posted In: Insider Trading , Texas Securities Fraud

January 28, 2011

Guilty Plea for Financial Adviser Who Used UBS Tips in $1M Healthcare Insider Trading Scheme

Registered investment adviser Alexei Koval has pleaded guilty to three counts of securities fraud and one count of conspiracy to commit securities fraud over his role in a $1 million insider trading scheme. Koval, a registered investment adviser, allegedly acted on tips about provided by his friend Igor Poteroba, an ex-UBS Securities LLC investment banker, about the healthcare industry.

Koval admitted to U.S. District Judge Paul Crotty that he and Poteroba engaged in securities fraud between 2005 and February 2009. The two of them used coded email messages to communicate. Poteroba also provided the tips to a third person, Alexander Vorobiev.

Koval, who used to work for Citigroup Asset Management (C.N), Northern Trust Bank (NTRS.O), and Legg Mason Inc. (LM.N) subsidiary Western Asset Management, says he paid money for the insider information about upcoming announcements regarding acquisitions or mergers involving Molecular Devices Corp, Guilford Pharmaceuticals Inc, Via Cell Inc, PharmaNet Development Group Inc, Indevus Pharmaceuticals Inc., and Millennium Pharmaceuticals Inc.

As part of Koval’s plea deal, he will forfeit at least $1,414,290 in illegal proceeds. He is facing fines in the millions of dollars and up to 65 years in prison. Koval is also facing civil securities fraud charges with the US Securities and Exchange Commission.

Illegal Insider Trading
The SEC describes this type of illegal trading usually refers to the selling or buying of a security that involves a breach of fiduciary trust or duty while in possession of nonpublic, material information about the security. It can involve the “tipping” of such information to others, actual trading by the person who was “tipped,” and trading by those who were in possession of the insider information.

Related Web Resources:
UBS Banker Poteroba’s Co-Defendant Koval Pleads Guilty, Business Week, January 7, 2011

Securities and Exchange Commission v. Igor Poteroba, Aleksey Koval, Alexander Vorobiev, and Relief Defendants Tatiana Vorobieva and Anjali Walter, Civil Action No. 10-civ-2667 (AKH), SEC, November 4, 2011

Insider Trading, SEC

Continue reading "Guilty Plea for Financial Adviser Who Used UBS Tips in $1M Healthcare Insider Trading Scheme" »

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Posted In: Financial Firms , Insider Trading , UBS

December 16, 2010

A Texan is Among Those Arrested in Insider Trading Crackdown Involving Apple Inc., Dell, and Advanced Micro Devices' Confidential Data

Federal prosecutors have arrested four people on insider trading charges related to the alleged revealing of secrets about Apple Inc.’s iPhone and other technology products to hedge funds looking for a trading advantage. Those arrested included Primary Global Research executive James Fleishman and “expert consultants” Mark Anthony Longoria from Texas, Walter Shimoon from California, and Manosha Karunatilaka of Massachusetts. All of the defendants are charged with wire fraud. The three “expert consultants” are also charged with conspiracy to commit securities fraud and wire fraud.

According to prosecutors, Fleishman arranged it so that Primary Global Research clients, such as hedge funds, could talk to the consultants, who gave them highly confidential information about Apple sales forecasts, new iPhone product features, and a secret project that was to become the iPod. Primary Gold Research allegedly paid consultants over $400,000 to engage in these phone conversations.

The case is an offshoot of an investigation into Galleon Funds founder Raj Rajaratnam and more than 20 others. Rajaratnam has pleaded not guilty to securities fraud. He claims that he only traded information to which the public also had access. Wiretaps were used to build the Galleon Funds case and this insider trading case.

According to the complaint, Flextronics International Limited business development senior director Shimoon illegally gave out insider information about the iPhone that had been given to Flextronics employees. The company and Apple had worked together on charger and camera components for both the iPod and iPhone. Shimoin was also caught on wiretaps saying he would obtain secrets about sales involving Research In Motion Ltd., which is the company that manufacturers Blackberries.

Texan Longoria is accused of giving out confidential information about Advanced Micro Devices, where he used to work as a supply chain manager. Another Primary Global Research consultant, ex- Dell global supply manager Daniel Devore, has pleaded guilty to conspiracy and wire fraud charges. Devore has said that Primary Gold Research paid him approximately $145,000 to provide insider information to company employees and clients about Dell.

Related Web Resources:
Insider trading case focuses on Apple's secrets, Victoria Advocate/AP, December 16, 2010

Four more arrests in insider trading case involving Primary Global Research, SFGate, December 16, 2010

Texas Securities Fraud, Stockbroker Fraud Blog

Insider Trading, Stockbroker Fraud Blog

Continue reading "A Texan is Among Those Arrested in Insider Trading Crackdown Involving Apple Inc., Dell, and Advanced Micro Devices' Confidential Data" »

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Posted In: Insider Trading , Texas Securities Fraud

November 23, 2010

3 Hedge Funds Raided by FBI in Insider Trading Case

As part of its growing investigation into possible inside trading in the $1.7 trillion hedge fund industry, the FBI has raided hedge funds Diamondback Capital Management LLC, Level Global Investors LP, and Loch Capital Management LLC, which has a close link to a witness who pleaded guilty in the insider trading probe involving hedge fund Galleon Group. (That investigation is one that prosecutors are calling the largest U.S. hedge fund insider trading case to date. Of the 23 people charged in civil or criminal court, 14 people, including ex- hedge fund S2 Capital LLC manager Steven Fortuna have pleaded guilty). Level Global Investors and Diamondback Capital Management are owned by ex-managers of Steven Cohen’s SAC Capital Advisors, which is also a hedge fund. Per public filings, Diamondback manages about $4.71 billion while Level Global manages about $3.09 billion.

The raids come just as federal prosecutors are getting ready to reveal a number of insider trading cases against hedge fund traders, Wall Street bankers, and consultants. In addition to trying to determine whether investment bankers and other parties let traders know about pharmaceutical company buyouts (companies have allegedly earned tens of millions of dollars in illegal profits because of secret information about mergers), officials are also looking at "expert network" firms that garner big fees from hedge funds for matching them with industry specialists.

Meantime, shares of Goldman Sachs Group Inc. dropped by 3.4% after The Wall Street Journal reported that the Justice Department is looking into possible leaks by Goldman employees about mergers.


Related Web Resources:
FBI raids 3 hedge funds in insider trading case, Reuters/Yahoo, November 22, 2010

Feds turn up heat on Wall St., raid 3 hedge funds, AP/Google, November 23, 2010

Continue reading "3 Hedge Funds Raided by FBI in Insider Trading Case" »

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Posted In: Hedge Funds , Insider Trading

July 31, 2010

Dallas Billionaire Brothers Charged with Texas Securities Fraud

Following a six-month probe, US Securities and Exchange Commission has charged two Dallas billionaires with Texas securities fraud. Brothers Charles and Samuel Wyly are accused of taking part in a financial fraud scheme that garnered them over $550 million in illicit gains.

The two men are accused of trading stock in four companies that they were the directors of and devising a securities scheme involving bogus subsidiaries and trusts in the Cayman Islands and the Isle of Man to cover up over $750 million of stock sales in Sterling Commerce Inc., Michaels Stores Inc, Scottish Annuity & Life Holdings Ltd., and Sterling Software Inc.

The SEC is also accusing the Wylys of making an insider trading gain of $31.7 million when they made a bet in Sterling Software, which they own, that was “massive and bullish” in 1999 after deciding to sell the company. Computer Associates bought the firm for $4 billion in stock in March 2000.

Also charged with Dallas securities fraud is the Wylys' attorney Michael French and broker Louis Schaufele.The SEC claims that the Wylys and French either should have known or knew that they had disclosure obligations because of their roles as owners and directors of over 5% of company stock. The defendants are accused of issuing hundreds of misleading statements that allowed the brothers to conduct trades without detection, including large block trades involving of over 14 million shares.

The SEC contends the two brothers used the proceeds from the alleged Texas securities fraud to acquire real estate, art, and jewelry. They also are accused of using the money to donate to charitable causes.

The SEC wants to get back ill-gotten gains, impose civil fines, prevent the two men from serving as director or officer of a public company, and other remedies. An attorney for the brothers says that the securities charges are without merit.

"This is a situation in which wealthy investors may find that they can seek tax refunds by characterizing the loss on their investment as a “theft lost” rather than as a capital loss carry-forward. In total, our clients have received millions of dollars in refunds using this technique," says Dallas Securities Lawyer William Shepherd.

Related Web Resources:
SEC Charges Corporate Insider Brothers With Fraud, SEC, July 29, 2010

SEC Charges Wyly Brothers With $550 Million Fraud, ABC News, July 29, 2010

Continue reading "Dallas Billionaire Brothers Charged with Texas Securities Fraud " »

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

February 25, 2010

Ex-UBS AG Executive to Settle ARS Insider Trading Allegations Made by NY Attorney General Cuomo with $2.75 Million Penalty

As part of a deal to settle ARS insider trading allegations by New York Attorney General Attorney Cuomo, former UBS AG executive David Shulman has agreed to pay $2.75 million. Shulman is accused of finding out through nonpublic, material information that the investment bank’s student loan auction rate securities program was in trouble and that there was a possibility that future auctions involving the student ARS would fail. Yet he allegedly violated New York securities regulations when he proceeded to sell more ARS.

On December 13, 2007, two days after finding out about the ARS risks, Shulman, who supervised the ARS trading desk, sold $1.45 million in personal holdings of student loan ARS to the desk. He was suspended in July 2008.

Shulman has not denied or admitted to the document’s findings. However, as part of the agreement with Cuomo, he is subject to a retroactive 30-month suspension from working as a registered broker-dealer.

In the wake of the ARS market collapse in February 2008 that left so many investors, who were misled into believing their investments were as liquid as cash, with frozen securities, Cuomo remains committed to investigating broker-dealers’ auction-rate securities marketing and sales practices. Many of the investment firms that sold the ARS did so despite allegedly knowing that the securities were in danger of failing.

Since August 2008, Cuomo has gotten 12 financial service firms to agree to repurchase $61 billion of ARS at par. As part of their securities fraud settlements, the broker-dealers are paying $597.3 million in penalties.

Related Web Resources:
Former UBS Muni Chief Settles Probe for $2.75 Million, BusinessWeek, February 18, 2010

Attorney General Cuomo Announces $2.75 Million Insider Trading Settlement with Former UBS Top Executive David Shulman, Office of the NY Attorney General, February 18, 2010

Continue reading "Ex-UBS AG Executive to Settle ARS Insider Trading Allegations Made by NY Attorney General Cuomo with $2.75 Million Penalty" »

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

Posted In: Auction-Rate Securities , Financial Firms , Insider Trading , UBS

February 13, 2010

Former Chelsey Capital Hedge Fund Manager Accused of Using Insider Tips From Former UBS Executive Pleads Guilty to Illegal Trading

David Slaine, a former manager for Chelsey Capital, has pleaded guilty to using UBS insider tips that allowed him to earn over $3 million for the hedge fund while he made more than $500,000 in illegal profits. The inside information was given to him by an ex-UBS Securities LLC executive.

According to the US Securities and Exchange Commission’s complaint, Slaine must still settle the SEC’s securities fraud allegations against him. The agency claims that Erik Franklin, a Chelsey Capital colleague, gave Slaine the tips. Franklin had received them from Mitchel S. Guttenberg, who worked in UBS’s equity research department as an executive editor.

The tips, which were UBS analysts’ equity securities recommendations, were supposed to be nonpublic. Slaine, however, used the information to trade in advance of the recommendations. In 2002, he made over 20 trades using that information.

SEC has settled related allegations against Guttenberg, Franklin, and five others. Guttenberg, who was convicted of insider trading, is serving 78 months in prison.

Slaine could be sentenced to up to 25 years behind bars. Although he pleaded guilty in December, this information was only made public this month. The former hedge fund manager has also been identified as a government cooperator in the Galleon hedge fund insider trading scheme.

Related Web Resources:
Ex-NY fund manager Slaine pleads guilty, Reuters, February 2, 2010

Ex-Galleon Trader Slaine Pleaded Guilty, Sued by SEC in Probe, BusinessWeek, February 3, 2010

Investor charged in Galleon insider trading case, TimesOnline, February 2, 2010

Continue reading "Former Chelsey Capital Hedge Fund Manager Accused of Using Insider Tips From Former UBS Executive Pleads Guilty to Illegal Trading" »

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Posted In: Financial Firms , Hedge Funds , Insider Trading , UBS

November 25, 2009

FINRA Bars Former Piper Jaffray & Co. Broker from Industry for Insider Trading

The Financial Industry Regulatory Authority is barring a former Piper Jaffray & Co. broker from the securities industry. The broker was accused of insider trading. He has agreed to the ban and has settled the FINRA charges without denying or admitting wrongdoing.

From 2007 until this July, the broker worked in Piper Jaffray & Co.’s investment banking department. Piper Jaffray was the confidential adviser of SoftBrands while the company considered potential buyers. Those at the advisory firm with access to information about the acquision were not allowed to buy SoftBrands shares. Yet on June 4 and 5, this broker bought 27,161 SoftBrands shares. On June 12, when SoftBrands announced its acquisition by Golden Gate Capital and Infor Global Solutions—an $80 million transaction. SoftBrands’s stock price almost doubled.

The shares at issue, previously bought at $.42 and.$.45 per share, were then sold at $.89 per share resulting in a profit of $11,955 on the transactions.

FINRA accused the broker of not only engaging in insider trading but also of using an undisclosed securities account at another broker-dealer so Piper Jaffray & Co. wouldn’t find out he was trading in SoftBrands stock.

FINRA says that its market regulation department is committed to “surveilling the markets” for insider trading and acting quickly to sanction wrongdoers by making them leave the securities industry.

The broker's name is being withheld at the request of his attorney who stated that the broker has paid a heavy price because of the actions in question and now wants to move on with his life outside the securities industry.

Our stockbroker fraud law firm represents many investors who have suffered losses because of improper actions by financial firms and their agetns, including also margin account abuse, misrepresentations, omissions, improper trade executions or failures to execute, breach of fiduciary duty or some other form of misconduct.

Related Web Resources:
FINRA Bars California Broker for Insider Trading, FINRA, November 4, 2009

Insider Trading, Securities and Exchange Commission

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

Posted In: Broker Fraud , Financial Firms , Insider Trading , Piper Jaffray

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