Posts Tagged ‘SEC’

New York Times writes about the fallen hedge fund billionaire Raj Rajaratnam received the longest prison sentence ever for insider trading on Thursday, capping an aggressive government campaign that has ensnared dozens and may help deter the illegal use of confidential information on Wall Street.

Judge Richard J. Holwell of Federal District Court in Manhattan sentenced Mr. Rajaratnam, 54, the former head of the Galleon Group hedge fund, to 11 years in prison. A jury convicted Mr. Rajaratnam of securities fraud and conspiracy in May after a two-month trial.

“Insider trading is an assault on the free markets,” said Judge Holwell, who also imposed a $10 million fine and ordered Mr. Rajaratnam to forfeit $53.8 million in ill-gotten profits. “His crimes reflect a virus in our business culture that needs to be eradicated.”

The sentence was a watershed moment in a two-year push by federal prosecutors. Over that period, Preet S. Bharara, the United States attorney in Manhattan, has brought charges against 54 people with insider trading crimes. Of those, 50 have been either pleaded guilty or have been convicted at trial. Three others’ situations are pending, and the fourth is a fugitive.

Yet the crackdown on insider trading — a crime whose victims are not always apparent — has come at a time when many Americans have questioned why authorities have not pursued charges against bank executives over their role in the financial crisis, which still weighs on the economy.

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The Securities and Exchange Commission today charged a former Goldman, Sachs & Co. employee and his father with insider trading on confidential information about Goldman’s trading strategies and intentions that he learned while working on the firm’s exchange-traded funds (ETF) desk.

The SEC’s Division of Enforcement alleges that Spencer D. Mindlin obtained non-public details about Goldman’s plans to purchase and sell large amounts of securities underlying the SPDR S&P Retail ETF (XRT). He tipped his father Alfred C. Mindlin, a certified public accountant. Father and son then illegally traded in four different securities underlying the XRT with knowledge of massive, market-moving trades in these securities that Goldman would later execute.

The case marks the SEC’s first insider trading enforcement action involving ETFs.

“With his father’s helping hand, Spencer Mindlin exploited his inside knowledge of Goldman’s complex hedging strategies to line his own pockets,” said George S. Canellos, Director of the SEC’s New York Regional Office.

Sanjay Wadhwa, Associate Director of the SEC’s New York Regional Office and Deputy Chief of the Market Abuse Unit, added, “We are aggressively working to identify and prosecute illegal insider trading across multiple markets and derivatives products regardless of the complexity of the trading pattern that we have to unravel in our investigations.”

According to the SEC’s order instituting proceedings against the Mindlins, the insider trading occurred in December 2007 and March 2008. Goldman was the largest institutional holder of the XRT in order to allow its customers to short the XRT. To hedge its long position in the XRT, Goldman shorted the individual securities underlying the XRT.

The SEC’s Division of Enforcement alleges that by virtue of his position on Goldman’s ETF desk, Spencer Mindlin knew Goldman’s current nonpublic position in the XRT and Goldman’s nonpublic plans to trade large amounts of securities underlying the XRT in order to hedge its position in the XRT. Spencer and Alfred Mindlin began purchasing and selling the four individual securities underlying the XRT within months after Spencer Mindlin joined Goldman’s ETF desk. They placed almost all of their trades in a brokerage account in the name of another family member. Spencer Mindlin failed to disclose his and his father’s trading to Goldman.

According to the SEC’s order, Spencer Mindlin learned on multiple occasions about Goldman’s trading intentions through e-mail communications he received shortly before he and his father placed their trades. In one instance when Alfred Mindlin phoned TD Ameritrade to upgrade the family member’s account to allow for the trading of options, he received a call on another line from Spencer Mindlin while on hold with the TD Ameritrade representative. Because the TD Ameritrade call was recorded, Spencer and Alfred Mindlin’s conversation discussing a trade was captured on tape. In later instances, Spencer Mindlin impersonated his father on at least four calls to TD Ameritrade. On one call, he instructed the firm not to execute a trade too early in the day because this would “chew into my profit – my profit on this trade.” The Mindlins obtained at least $57,000 in illicit profits through their insider trading.

The SEC’s Division of Enforcement alleges that by engaging in the misconduct described in the SEC’s order, the Mindlins willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The proceedings will determine what relief, if any, is in the public interest against the Mindlins, including disgorgement of ill-gotten gains, prejudgment interest, financial penalties, and other remedial relief.

The Money Times wrote about another inside information case, but rather different this time.

A Walt Disney Co. administrative assistant and her boyfriend were caught trying to sell inside information regarding the company’s earnings. Both of them were arrested Wednesday morning in Los Angeles.

Walt Disney Co.’s head of corporate communications, Zenia Mucha’s assistant Bonnie Hoxie and her boyfriend Yonni Sebbag plotted to sell confidential Disney information to investment companies. The duo sent out mails to about 33 companies, including hedge funds, offering to share Disney’s quarterly earnings report with them in exchange of money.

Releasing Disney’s confidential information

“Hi, I have access to Disney’s (DIS) quarterly earnings report before its release on 05/03/10,” read the letter, sent Mar 5. “I am willing to share this information for a fee that we can determine later.”

The United States attorney for the Southern District of New York has charged the two with conspiracy and wire fraud. Hoxie, 33, and Sebbag, 29, could face up to 25 years in prison and a $250,000 fine, if convicted on all charges.

A federal judge released Hoxie on a $50,000 bond but ordered that Sebbag must be held as a potential flight risk. The U.S. Securities and Exchange Commission has also sued the two.

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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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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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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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