Archive for the ‘Insider Trading Scandal’ Category

Malcolm Calvert, a former equities marketmaker at stock broker Cazenove, was found guilty at Southwark Crown Court on five counts of insider dealing according to UK FSA. Calvert made approximately £103,883 profit from the trades that took place between June 2003 and October 2004.

The case is the third successful prosecution for insider dealing bought by the Financial Services Authority (FSA) and is part of its ongoing drive to tackle market abuse and promote efficient, orderly and fair markets.

The prosecution is also notable for the involvement of a key witness, Bertie Hatcher – a friend of Calvert – who agreed to provide evidence in the trial having been involved in the illicit dealings himself.

Margaret Cole, director of enforcement and financial crime at the FSA, said:

“This is another milestone in our fight against market abuse. It’s a misconception that insider dealing is a victimless crime: it damages the very confidence and trust our markets operate on and it must be stopped.”

“The guilty verdict is a shot across the bow for any city workers who may be tempted to trade using insider knowledge. Our message is simple: if you take part in such activity, you run a very real risk of the FSA taking criminal action against you.”

The full sentencing and confiscation hearing will took place on Thursday 11th March.

The FSA also announced that it has fined Hatcher, a retired bookmaker and insurance broker from Ipswich, £56,098 for market abuse, and published details of the agreement it made with him which led to his assistance in the prosecution of Calvert.

The FSA found that between 2003 and 2005 Hatcher had profited from inside information, using it to buy and sell about 420,000 shares in six companies. The fine represents the full disgorgement of his share of the net profit from these trades.

As part of a settlement with the FSA, Hatcher agreed to provide ongoing assistance to the investigation. In return, the FSA agreed to sanction Hatcher using its regulatory powers rather than a criminal prosecution; Hatcher’s fine was also reduced substantially owing to his cooperation.

Ms Cole continued:

“Hatcher took part in illicit trades using inside information and profited from them; because of this he has received a significant fine. However we were also mindful of the need to encourage others to come forward and assist in the investigation and prosecution of insider dealing and market abuse – especially where it is suspected that two or more people have been involved – and that is why we made an agreement with him.

“Hatcher provided valuable evidence to the FSA, not just about his own misconduct, but also in relation to Calvert. We will continue to enter into agreements of this sort where we believe it is in the public interest and interests of justice for the FSA to do so.”

Source: FSA UK Homepage

The Guardian wrote that two City workers face fines and a ban from the Square Mile after they used inside information to make more than £85,000 from spread betting on shares.

Robin Chhabra, a former research analyst at Evolution, and his friend Sameer Patel, an investment manager at General Motors Asset Management, were found by a City tribunal to have colluded in using confidential information to make quick profits.

Their punishment is yet to be decided because they had been disputing a finding by the Financial Services Authority that they had committed market abuse. However, the financial services and markets tribunal, which rules on disputes between the FSA and individuals and firms facing regulatory action, upheld the FSA’s case.

Margaret Cole, FSA director of enforcement and financial crime, said: “Chhabra and Patel’s behaviour fell far short of that expected of approved persons. By repeatedly giving Patel privileged information, Chhabra breached the trust of his clients and his employer.

“Patel exploited this information to try to make a quick profit at the expense of other investors. Market abuse is a serious matter and the FSA will continue to pursue and take action against anyone who believes they can make easy money off the back of confidential information.”

The tribunal will hold a new hearing on the “penalties and prohibition orders” against the two men, both aged 38. They have known each other for more than 20 years, acting as each other’s best man, and between 20 April and 3 August 2004 had 165 “telephone contacts”.

Patel, who was using his own money to trade, made £85,541 after placing spread bets on ebookers and Eidos shares following tips from Chhabra, who received inside information at Evolution where he covered 20 stocks.

Some of the gains were made when the companies issued profits warnings during the middle of the trading day – an unusual occurrence, rather than 7am – the tribunal was told by the FSA.

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BalticBusinessNews writes that Swedbank employee suspected of insider trading. Anton Uustalu, 27-year-old former employee of client relations department of Swedbank, is one of the suspects in insider trading scheme with Eesti Telekom stock.

Priit Perens, general manager of Swedbank Eesti, said that he could not comment the case and suggested that Äripäev asked the prosecution for comment. “Uustalu left on the mutual agreement,” was all that Perens said, without elaborating why Uustalu’s employment contract was terminated.

IFA Online wrote about Alexei Krilov-Harrison released inside information of a major contract between Provexis and an international food company to his clients two days before the formal announcement, when the company’s share price was forecast to rise as a result.

On 28 March 2007, Krilov-Harrison made three calls to clients disclosing the upcoming Provexis deal, advising the share price would ‘jump up substantially’ when made public and encouraging them to buy Provexis shares.

Two days later, Provexis announced the new contract and its share price increased by 19.81% from the closing price on the previous day. The FSA found Krilov-Harrison’s actions had been deliberate and been motivated by his desire to get a bonus.

Margaret Cole, director of enforcement and financial crime at the FSA, says: “Anyone who uses inside information to encourage their clients to buy shares is abusing their privileged position and cheating other honest investors. This is plainly wrong. Market participants must ensure they do not pass inside information to their clients in these circumstances.

“We are committed to tackling market abuse in its various guises and will not hesitate to take action to ensure that the UK markets operate in a fair, efficient and orderly way for all investors.”

New York Times wrote that Estonian prosecutors charged Dmitri Vassiljev, a former analyst at SEB Enskilda, with using inside information to trade shares and options of the Baltic telecommunications companiess Eesti Telekom and TEO.

Mr. Vassiljev used information on TeliaSonera’s offer to buy out minority shareholders in the two companies to which he had access to before it was made public, the Tallinn-based state prosecutor’s office and Financial Supervisory Authority said Thursday in separate statements. Eesti Telekom rose 23 percent and TEO jumped 30 percent after the offer was announced
August 24th.

Comments from CSA Partners:

This case highlights the importance of proper systems and controls that investment banks and advisors should have in place in order safeguard inside information from their customers.

In particular:

• every member of the staff should be exposed to the information only on a need to know basis;
• flow of inside information should be rigorously controlled and list of insiders, with exact date and time when information was received, maintained;
• each employee who has obtained the access to the information, should be alerted about the fact that the information received, is inside information;
• adequate personal account dealing controls (e.g. list of restricted instruments) should prohibit members of the staff from making transactions (directly or via related persons) with securities issued by the customer.

CNBW writes that the US Supreme Court has refused to hear former Qwest CEO Joseph Nacchio’s appeal of his insider trading conviction. The court said Monday it would not entertain Nacchio’s request that he either be acquitted of the charge or granted a new trial.

Prosecutors said Nacchio sold $52 million worth of stock in 2001 while knowing that Denver-based Qwest Communications International would have trouble meeting its sales goals. Nacchio began serving a six-year sentence on April 14. He contended the jury was given improper instructions about what internal information had to be disclosed publicly.

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The Securities and Exchange Commission today charged Richardson, Texas resident Reza Saleh with insider trading around the public announcement of Dell Inc.’s tender offer for Perot Systems earlier this week.

The SEC alleges that Saleh made increasingly large purchases of Perot Systems call options contracts based on material, non-public information that he learned in the course of his employment with, or duties for, two Perot-related private companies and Perot Systems. Immediately following the tender offer announcement on Monday, September 21, Saleh sold all of the call option contracts in the accounts and reaped approximately $8.6 million in illicit profits.

Later that same morning, SEC staff with assistance from the Options Regulatory Surveillance Authority identified Saleh as a suspicious trader. Soon after being contacted by SEC staff, Saleh acknowledged to a Perot Systems director that he knew about the impending transaction when he traded.

“The overwhelming evidence in this case allowed the SEC to move quickly against the trader before he could spend the huge profits from his illegal trading,” said Rose Romero, Director of the SEC’s Fort Worth Regional Office. “The Commission is seeking a court order to freeze Saleh’s assets.”

According to the SEC’s complaint, filed in federal court in Dallas, Saleh purchased 9,332 Perot Systems call option contracts through two brokerage accounts between Sept. 4 and Sept. 18, 2009. The call option contracts were set to expire in October 2009 and January 2010. Saleh sold all of the call options following the announcement as Perot Systems’ stock price immediately increased by approximately 65 percent.

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