Archive for the ‘USA & Canada’ Category

Guardian writes about the US Securities and Exchange Commission (SEC) charged Mark Cuban today with insider trading stemming from a 2004 sale of stock in an internet company.

The civil lawsuit alleges that Cuban avoided losses in excess of $750,000 by selling 600,000 shares he learned would be diluted by a new stock offering. The company, Mamma.com, told. Cuban about the offering on the condition that he keep the information confidential.

“Less than four hours later, Mr Cuban betrayed that trust by placing an order to sell all of his shares,” said Scott W Friestad, the SEC’s deputy director of enforcement. “It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market.”

The complaint, filed in the Northern District of Texas, demands that Cuban forfeit the monetary losses he avoided and pay a civil penalty. Cuban has retained Paul E Coggins, a former US attorney for the northern district of Texas, as his defense counsel. Neither Coggins nor his co-counsel, Ralph C Ferrara, could be reached for comment this morning.

Cuban, the owner of the Dallas Mavericks basketball team, owned a 6.3% stake in the company, now known as Copernic Inc. At the time of the sale, he was the company’s largest-known shareholder. Cuban was told about the stock offering through a phone call with Mamma.com’s chief executive on June 28 2004, according to the SEC complaint.

Cuban “became very upset and angry during the conversation” because the private offering would dilute existing shareholders, according the complaint. “Well, now I’m screwed,” Cuban told the executive. “I can’t sell.” But Cuban later called his Dallas broker and ordered him to sell all 600,000 shares he owned. “Sell what you can tonight and just get me out the next day,” he said, according to the complaint.

Cuban liquidated his position on June 28 and June 29, before Mamma.com announced its new, private offering, the complaint says. On June 30, trading in Mamma.com opened at $11.89, down 9.3% from the June 29 closing price of $13.105.

Copernic’s stock plummeted in the months following the private offering, and it has never regained its June 2004 levels. In midday trading today, it was trading at 26 cents a share.

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Comment from CSA Partners: If the company would have used INSIDeR compliance software to manage it’s insider list and this specific inside information case about private offering, this insider trading might not have happened. As INSIDeR sends automatic notifications to every insider added to project-specific list, describing the rights and obligations of the project-based insider, Mr. Cuban could have been more informed about his insider position and might have thought about the consequences and possible charges.

Deloitte has filed a lawsuit against a former partner in its Chicago office, contending the man traded on inside information related to audit clients.Thomas Flanagan, a 30-year Deloitte partner, allegedly bought stock in an unnamed publicly traded company one week prior to Walgreen’s July 2007 announcement that it bought Option Care Inc., the Chicago Tribune reported. Flanagan, 61, served as advisory partner, managing the client relationship with Walgreens. He resigned abruptly in September, according to court documents.

While the SEC is looking into the matter, federal officials have not filed charges against Flanagan for buying or selling securities on non-public information, which is illegal.

Deloitte also accuses Flanagan of trading in securities of 12 or more audit clients between January 2005 and June 2008. He worked with seven of those clients. Walgreens, Allstate Corp., and USG Corp. stated in SEC filings that a Deloitte partner allegedly bought securities in their companies, but they all said the firm’s auditor independence remained intact.

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FT.com writes about a former UBS executive was on Monday sentenced to six and a half years in prison for his role in a Wall Street insider trader ring. Mitchel Guttenberg, a former executive director in the equity research department of UBS Securities, pleaded guilty in February to securities fraud.

He was accused of giving traders at several hedge funds advance warning of stock upgrades and downgrades over a number of years in exchange for hundreds of thousands of dollars. He was one of 13 people, including current and former employees of Morgan Stanley, UBS and Bear Stearns, charged in March last year in what US authorities called one of the most pervasive insider trading rings since the days of Ivan Boesky during the 1980s.

Mr Guttenberg – who had faced a maximum of eight years imprisonment under federal sentencing guidelines – was sentenced to six and half years in prison followed by three years of supervision.

He was also told to forfeit $15.81m, reflecting the proceeds of the insider trading scheme from 2001-2006, the US attorney for New York’s southern district announced on Monday.

Prosecutors said Mr Guttenberg repeatedly sold non-public information regarding UBS analysts’ securities recommendations to securities traders.

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Reuters writes that The U.S. Securities and Exchange Commission said on Wednesday it had brought the highest number of insider trading cases in its history during the 2008 fiscal year that ended Sept. 30.

The SEC also said the 671 enforcement actions of all types was the second highest on record.

“The SEC’s role in policing the markets and protecting investors has never been more critical,” said SEC enforcement director Linda Thomsen in a statement. “The staff’s commitment is unwavering year-in and year-out.”

The SEC’s enforcement division has been criticized in recent weeks by its own internal watchdog and lawmakers. The SEC’s inspector general found earlier this month that an SEC regional director failed to vigorously enforce securities laws in a 2003 investigation into Bear Stearns’ pricing of collateralized debt obligations.

The inspector general found in a separate report released in October that the SEC should discipline Thomsen and two supervisors for their role in an insider trading probe.

And this week, Sen. Chuck Grassley, the ranking Republican on the Senate Finance Committee, wrote to SEC Chairman Christopher Cox, citing “anonymous but specific” information on what he called inappropriate contact between SEC’s enforcement director and JPMorgan’s general counsel while the investment bank was mulling a bid for Bear Stearns.

The SEC declined to comment on Grassley’s letter.

The agency said on Wednesday that for the just-completed fiscal year, the number of insider trading and market manipulation cases rose more than 25 percent and 45 percent, respectively, over the prior year.

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The Guardian writes about the former head of a public relations firm has agreed to settle charges of insider trading in the 2007 Eurex Frankfurt AG purchase of International Securities Exchange Holdings Inc, according to court documents filed on Friday.

Matthew Zachowski, former chief executive officer of a New York public relations firm, agreed to pay civil charges of more than $395,000 without admitting or denying the allegations by the U.S. Securities and Exchange Commission, the SEC said in a statement. The SEC filed a request with U.S. District Court Judge Paul Crotty in Manhattan to approve the settlement.

Zachowski’s company, which was not identified in court documents, was hired by the German exchange to help with the announcement of the $2.8 billion merger in April last year to create a transatlantic derivatives marketplace.

The SEC accused Zachowski of using non-public information to trade ISE stock, netting him $194,365 in illegal profits. The complaint said the PR firm’s head broke a confidentiality agreement with the exchange.

Zachowski, who had never previously traded in ISE stock according to the SEC, bought 10,000 shares of common stock at a cost of about $456,000 on April 27, 2007, the last trading day before the April 30 announcement. He then sold the stock on the day of the agreement, when the share price rose by 46 percent.

The European aerospace group EADS, its shareholders and executives are likely to face their first transatlantic class action lawsuits over alleged insider dealing and potentially misleading the market, in a sign of growing tendency by investors to use the more aggressive US class action system to demand compensation for alleged wrongdoing in European companies.

Dreier, a law firm in New York, said it had filed a lawsuit alleging that EADS, the corporate parent of Airbus, and its controlling shareholders committed securities fraud and insider trading related to delays in deliveries of the A380 super jumbo jet in 2005 and 2006.

Another firm, Coughlin Stoia Geller Rudman & Robbins of San Diego, said that it had filed a similar complaint, on behalf of an unidentified institutional investor. That lawsuit alleges violations of the U.S. Securities Exchange Act by EADS or its executives.

Both suits were filed in U.S. District Court in New York City.

Even though EADS has never been quoted in the US but the plaintiffs’ lawyers argue that the group’s US activities and international statements provide sufficient grounds for US courts to have jurisdiction. Lawsuits aim to represent U.S. investors who bought stock on European exchanges in EADS, Europe’s largest aerospace group.

In the United States, competing class-action lawsuits can be filed by anyone seeking to act as lead plaintiff on behalf of a class of investors. A judge then decides whether the class exists and who is best placed to represent it.

EADS disclosed serious problems in building the A380 in June 2006, sending its shares down 26 percent in one day. That came weeks after core shareholders and some executives had allegedly sold shares of EADS.

Linda Chatman Thomsen, the SEC’s director of enforcement warned that insider trading on Wall Street is starting to look as troubling as it was in the days of Ivan Boesky in the 1980s. Boesky was a Wall Street arbitrageur who was convicted of insider trading in 1987, spent two years in prison, and paid $100 million to settle lawsuits.

“The tippers and tippees have been in senior positions of trust and confidence,” told Ms Thomsen at recent compliance conference in Washington. “We are far from low-level employees or people on Main Street” said Ms Thomsen when expressing concern over “multiple incidences” of insider trading and cases involving professionals:

• Last week, a former Ernst & Young partner was charged with allegedly passing insider trading information to an investment banker friend ahead of seven deals involving the accounting firm’s clients (see recent posting on this case).

• In one of the most high-profile cases recently, 13 people, including a Morgan Stanley compliance officer and a UBS executive director, were charged in relation to an insider trading scheme.

According to Ms Thomsen the trend looks troubling and “the need to remind people of the consequences of this kind of behaviour is really acute,” she told.

SEC brought 47 insider trading cases last year, similar to the number in 2006. However, the number of defendants and respondents involved jumped 16% to 110 over that period and those involved have increasingly included people in senior positions such as partners, general counsels and compliance officers.

She said insider trading has also taken on a global nature, given the interconnectedness of markets. These and other types of enforcement issues therefore require greater global cooperation, and regulators are not just sharing information but “will be thinking about how to do global law enforcement”, she said.