Defending 10b5-1 Plans

We haven't seen much interest in Rule 10b5-1 plans recently. I suppose that a declining market during recent years tempered the desire to sell stock. If so, we should see a rise in the interest in such plans once again.

For those unfamiliar with these plans, a 10b5-1 plan is used by insiders in public company to sell securities of their company, without running afoul of insider trading laws. The plans are detailed, specific plans that are designed to let executives sell off shares at regular intervals, regardless of events inside the company at the time of the sales. Properly structured and executed, the plans provide a clear defense to an insider trading allegation.

Years ago the SEC began investigating the use of the plans, or rather the alleged abuse of the plans. According to the Commission, some executives were attempting to modify their plans as events at the company unfolded, causing potential violations of Rule 10b5-1, the SEC rule that permits the use of such plans. I wrote about the issue back then - 10b5-1 Plans Under Attack.

Along with a potential increase in the use of the plans, the Commission is once again looking into the use of the plans. According to the Harvard Law School Forum on Corporate Governance and Financial Regulation,  several recent Wall Street Journal articles suggest that some executives may have achieved above-market returns using the plans. These articles are reported to have drawn the interest of federal prosecutors and the SEC enforcement staff.

The problems that we have seen in the plans are in the execution of the plan itself, not in the creation of the plan. Defending executives in an SEC investigation over the use of a 10b5-1 plan  should not be a difficult endeavor. As noted in the article, although regulators and the media may scrutinize trades made under 10b5-1 plans even when above board and done according to best practices, a well-thought-out and implemented 10b5-1 plan may help a company and its executives avoid or ultimately refute accusations of impropriety.

More details are available at Rule 10b5-1 Plans: What You Need to Know

The attorneys associated with my firm include former SEC Senior Enforcement Attorneys and criminal prosecutors. In addition, I have been representing executive, financial professionals and firms in regulatory investigations and proceedings for over 25 years. If you have a question regarding an investigation, give me a call or send me an email - 212-509-6544 or astarita@beamlaw.com

Related articles

• Introduction to Insider Trading - The Legal vs. The Illegal
• SEC Intensifies Scrutiny on Stock Sales by Insiders and 10b5-1 Plans 
• The Fine Line Between Legal, and Illegal, Insider Trading 
• The Best-Laid Plans of 10b5-1 
• SEC Says Congressional Insider Trading Not Illegal

ICE to Acquire NYSE

 

Intercontinental Exchange said it plans to acquire NYSE Euronext in a stock and cash deal worth $8.2 billion. Both companies’ boards approved the plan to merge early Thursday.

Intercontinental Exchange, typically called ICE, operates regulated markets that trade in agricultural and energy commodities, credit derivatives, equities and equity derivatives, foreign exchange and interest rates. The firm also operates a wide range of clearing houses and has launched houses in the United States and Europe that clear credit-default swap transactions.

More information is available at Financial Planning.com ICE to Acquire NYSE for $8.2B

Related articles, courtesy of Zemanta:

• CME and Kansas City Board of Trade: More Consolidation in Exchanges

Tipper-Tippee Liability Issues in Insider Trading

Insider trading cases can often become widespread, as the Commission moves through the chain of tips. In another case announced this week, the Securities and Exchange Commission charged an investment banker who was primarily based in Charlotte, N.C., and nine others involved in an insider trading ring that garnered more than $11 million in illicit profits trading on confidential information about impending mergers.

Keeping in mind that tippers are responsible for the trades of their tippees, this case takes on a whole new angle. And remember that the fines can include disgorgement of all profits (without giving effect to losses) and a two times penalty.

In the newest case the SEC alleges that John W. Femenia misused his position at Wells Fargo Securities to obtain material, nonpublic information about four separate merger transactions involving firm clients. Upon learning inside information about an impending deal, Femenia’s first call to set the insider trading ring in motion was typically to his longtime friend Shawn C. Hegedus, who worked as a registered broker. Femenia and Hegedus illegally tipped other friends who in turn tipped more friends or family members in a ring that spread across five states.

The SEC has obtained a court order freezing the assets of the illegal traders.

“Here you have an investment banker who clearly knew better that inside information can’t form the basis of trading decisions,” said William P. Hicks, Associate Director for Enforcement in the SEC’s Atlanta Regional Office. “Instead he basically started a phone tree of nonpublic information to enrich friends and others.”

More details are available at SEC Charges 10 in Insider Trading Ring Around Investment Banker's Illegal Tips on Impending Mergers; 2012-255; December 5, 2012.

Related articles

• UPDATE 1-SEC charges Wells Fargo banker, 9 others with insider-trading

SEC Insider Trading Cases

As our readers and followers are aware, part of our practice is the representation of targets, defendants and potential defendants in insider trading investigations and complaints. Since 1985 when I was part of the defense team for the first civil prosecution of insider trading under the misappropriation theory, this specific area of the law has been part of my practice.

In SEC vs. Materia, the trial court found that Mr. Material, a financial printing firm employee, misappropriated confidential information from his employer and traded on that information. The Second Circuit adopted that reasoning, paving the way for the Supreme Court's adoption of the misappropriation theory of insider trading some 13 years later.

That case, and the entire concept of the misappropriation theory has always struck me as being wrong and intellectually dishonest. The "fraud" is not connected to the purchase or sale of a security, and the misappropriation theory simply reads the "in connection with" requirement of 10b-5 out of the statute.

However, I can't change the law, and today, with my new association with former SEC Senior Enforcement Attorneys Jim Sallah and Jeff Cox, we continue to represent those accused of insider trading across the country, and have expanded that area of our practices.

In doing so, we have  noticed an increase in insider trading cases brought by the Commission, which was recently confirmed by the SEC. In the recap of recent insider trading cases posted at the SEC's website, the Commission provides information regarding the 57 insider trading cases that it has brought over the last two calendar years.

Many of these cases have been discussed here on our blog, but the SEC provides information on their cases brought since 2009.  As we have noted in the past, the types of individuals accused of insider trading is interesting, and includes an Investment Bank Analyst, a Public Relations Executive, Former Major League Baseball Players, a Pharmaceutical Company Executive, Five Physicians, the Founder of Equity Research Firm, a Yahoo Executive and Ameriprise Manager, a Movie Producer and Ring of Relatives and Associates, an Expert Consulting Firm  and a host of stock brokers, traders and hedge fund managers.

The entire list is at the Commission's web site, and although they do not trumpet the cases they lost, such as the one they lost in Florida last year, where Jim Sallah successfully defended a doctor in an insider trading case, the list is an interesting look at those recent enforcement cases.

SEC List of Recent Insider Trading Cases

Related articles

• Lucky 7: The Insider-Trading Schemes That Paid the Most
• NewsWatch: SEC alleges largest-ever insider-trading scheme
• Hedge funder faces insider trading charges
• Ex-SAC Capital Trader Charged in $276 Million Insider Trading Scheme
• Former J. Crew Exec Settles SEC Insider Trading Charges

SEC Charges Poker Players with Insider Trading

The SEC announced charges against a California man for with illegally tipping a hedge fund manager with inside information about Nvidia Corporation’s quarterly earnings that he learned from his friend who worked at the company.
The SEC alleges that Hyung Lim of Los Altos, Calif., received $15,000 and stock tips about a pending corporate acquisition for regularly providing a fellow poker player, Danny Kuo, with nonpublic details ahead of Nvidia’s quarterly earnings announcements.  Kuo, a hedge fund manager, illegally traded on the information and passed it on to multi-billion dollar hedge fund advisory firms Diamondback Capital Management LLC and Level Global Investors LP.
The SEC charged Kuo and the firms among others earlier this year as part of its widespread investigation into the trading activities of hedge funds. “These hedge fund traders were eager to find an edge in an otherwise competitive marketplace, and Lim provided them that edge for a price,” said Sanjay Wadhwa, Associate Director of the SEC’s New York Regional Office and Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Now one more participant in this sprawling scheme is being held accountable for his illegal transgressions.”
In a parallel action, the U.S. Attorney for the Southern District of New York today announced criminal charges against Lim. According to the SEC’s complaint filed in federal court in Manhattan, Kuo and the hedge funds made nearly $16 million trading in Nvidia securities based on Lim’s inside information.
More detail is available at the SEC web site in its press release.
We represent professionals and investors in insider trading investigations and proceedings, and have been doing so for decades. If you have a question regarding an insider trading investigation, or any SEC, FINRA or State investigation, send us an email at info@beamlaw.com

Related articles, courtesy of Zemanta:

• 'Moles' Gave Hedge-Fund Manager Whitman Tips, U.S. Says
• Hedge Funds Buy Metals, Oil & Gas, Sell USDs: BAC
• Hedge Fund Manager Denies Trading on Insider Tip - Bloomberg
• San Francisco hedge-fund manager convicted of insider trading of Google, other tech stocks

SEC Charges Eight in Insider Trading Ring - Really? A "Ring"?

I don't think that a group of friends buying a stock based on a buddy's recommendation constitutes an insider trading "ring" but if what the SEC says they did is true, it is certainly insider trading and illegal.
The SEC charged eight individuals living in the Griffin, Ga., area for their involvement in an insider trading "ring" that generated more than $500,000 in illegal profits based on nonpublic information about an upcoming company merger.Four of the eight men agreed to settle the SEC’s charges and pay back all of their ill-gotten gains plus interest and penalties for a combined total of more than $175,000.
Here is the issue for the Commission - the original tipster in the case is the accountant for a member of the Board of Directors of a company that was going to be acquired. The accountant told his partner and three of his friends. One of those friends in turn is alleged to have tipped three of his friends.
The problem for the Commission, and the defense for the traders, is the concept of scienter, a guilty mind. The SEC has to prove that the defendants knew that they were trading on material, non-public information, in violation of a duty not to trade.
The farther we get from the original source of the information, the more difficult that burden becomes, and the friends of friends of the accountant to the Board member may very well have a defense to the charges. That is something that an experience securities attorney can assist with. Our firm's attorneys have the experience and knowledge necessary to make that evaluation and develop those defenses. If you have concerns regarding insider trading contact me at astarita at beamlaw dot com, or at 212-509-6544.
For more information on this alleged insider trading "ring" see the SEC's press release at SEC Charges Eight in Georgia-Based Insider Trading Ring  which also contains the various complaintes the SEC has filed against the alleged insider traders.dd
Related Articles:

• More Insider Trading Follies - This Time Professional Baseball Players!
• Insider Trading? Why Not? This time a CEO and His Own Company's Stock!
• The Securities Law Blog: More Insider Trading Follies - This Time, Physicians!
• Attorney, Trader and Middleman Settle SEC Charges in $32 Million Insider Trading Case
• Yahoo Executive and Mutual Fund Manager Charged With Insider Trading - Civil and Criminal.
• Japan Checking Possible Insider Trading of ANA, Official Says 
• China's securities regulator roots out insider trading

More Insider Trading Follies - This Time Professional Baseball Players!

 The Securities and Exchange Commission announced a second round of charges in an insider trading case involving former professional baseball players and the former top executive at a California-based medical eye products company that was the subject of the illegal trading.

The SEC brought initial charges in the case last year, accusing former professional baseball player Doug DeCinces and three others of insider trading on confidential information ahead of an acquisition of Advanced Medical Optics Inc. DeCinces and his three tippees made more than $1.7 million in illegal profits, and they agreed to pay more than $3.3 million to settle the SEC’s charges.

Now the SEC is charging the source of those illegal tips about the impending transaction – DeCinces’s close friend and neighbor James V. Mazzo, who was the Chairman and CEO of Advanced Medical Optics. The SEC also is charging two others who traded on inside information that DeCinces tipped to them – DeCinces’ former Baltimore Orioles teammate Eddie Murray and another friend David L. Parker, who is a businessman living in Utah.

The SEC alleges that Murray made approximately $235,314 in illegal profits after Illinois-based Abbott Laboratories Inc. publicly announced its plan to purchase Advanced Medical Optics through a tender offer. Murray agreed to settle the SEC’s charges by paying $358,151. The SEC’s case continues against Parker and Mazzo, the latter of whom was directly involved in the tender offer and tipped the confidential information to DeCinces along the way.

“It is truly disappointing when role models, particularly those who have achieved so much in their professional careers, give in to the temptation of easy money,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit and Director of the Philadelphia Regional Office. “Mazzo had repeated personal contacts and communications with DeCinces, who promptly traded and tipped Murray, Parker and others that a deal involving Mazzo’s company was imminent. CEOs and other employees of public companies must resist the lure of sharing confidential information with their friends and always put the interests of their shareholders and company first.”

For more details see the SEC's Press Release New Charges in Insider Trading Case Include Former CEO and Professional Baseball Player

Insider Trading? Why Not? This time a CEO and His Own Company's Stock!

The SEC charged the chairman and CEO of a Santa Ana, Calif.-based computer storage device company with insider trading in a secondary offering of his stock shares with knowledge of confidential information that a major customer’s demand for one of its most profitable products was turning out to be less than expected.

The SEC alleges that Manouchehr Moshayedi sought to take advantage of a dramatically upward trend in the stock price of STEC Inc. by deciding to sell a significant portion of his stock holdings as well as shares owned by his brother, a company co-founder. The secondary offering was set to coincide with the release of the company’s financial results for the second quarter of 2009 and its revenue guidance for the third quarter. However, in the days leading up to the secondary offering, Moshayedi learned critical nonpublic information that was likely to have a detrimental impact on the stock price. Moshayedi did not call off the offering and abstain from selling his shares once he possessed the negative information unbeknownst to the investing public. Instead, he engaged in a fraudulent scheme to hide the truth through a secret side deal, and proceeded with the sale of 9 million shares from which he and his brother reaped gross proceeds of approximately $134 million each.

SEC Charges CEO With Insider Trading in Secondary Offering of Company Stock

More Insider Trading Follies - This Time, Physicians!

As I have said before, this is simply amazing.

We represent a fair number of investors who have been called to respond to SEC inquiries in connection with insider trading investigations. Maybe that is why I understand and appreciate the ability of the Commission to find those who trade on inside information and those who are not as familiar with such investigations do not have the same understanding.

To be sure, there is apparently a never ending series of investigations into insider trading, as well as lawsuits and settlements brought by the Commission. However, the SEC often casts a very wide net in its insider trading investigations, and many investors who are subpoenaed have valid reasons for their stock transactions, and did not trade while in possession of material non-public infomation.

Perhaps the SEC is not doing a very good job of educating investors that buying stock based on material non-public information is illegal. Whatever the reason, last week there was yet another SEC suit filed and settled.

This time is a a couple of doctors. In recent months we have had attorneys, a mutual fund manager, a Yahoo Executive, a Hollywood movie producer, and others (see our insider trading stories for the details).

According to the SEC press release and complaint, one doctor was the Chairman of the Board of American Physicians Capital, Inc. He knew that the Board was looking into selling the company, and later, that the firm was taking definitive steps to sell. The Commission alleged that this was material non-public information, and that the doctor shared that information with his friends and family. The Commission also alleges that they purchased $2.2 million of the company's stock based on that information. When the acquisition was announced, the shares closed up 28% over the previous day's close.

According to the Commission's press release, collectively, they made more than $623,000 in profits on their ACAP stock following the announcement.

Now for the real lesson in this matter. With $623,000 in profits, they agreed to pay the Commission over $1.9 MILLION dollars to settle the charges. Apparently this is something else that folks don't know - is a pretty settlement for an insider trading case - you give back your profits (without taking a credit for any losses) and then pay a penalty that is twice the amount of the profits. That is some pretty serious stuff, never mind that insider trading is also a crime.

Keep it in mind when you get that "hot tip" on a  stock. At the same time, even if you have a legitimate reason for purchasing the stock and the SEC comes calling, call an experienced securities attorney.

My number is 212-509-6544.

For more information see the press release. The insider trading complaint is also online. 

 Related articles

• Attorney, Trader and Middleman Settle SEC Charges in $32 Million Insider Trading Case
• Yahoo Executive and Mutual Fund Manager Charged With Insider Trading - Civil and Criminal.
• Japan Checking Possible Insider Trading of ANA, Official Says 
• China's securities regulator roots out insider trading

More Unusual News from Grupta Trial

Gupta ‘Highly Likely’ to Take the Stand, Lawyer Says

Yahoo Executive and Mutual Fund Manager Charged With Insider Trading - Civil and Criminal.

Sometimes clients and prospective clients express disbelief when I tell them that violations of the securities acts can have criminal ramifications, and that simply because you do not often see criminal cases, that does not mean that violations of the acts are not crimes.
The most recent case in point came with the SEC's announcement on Monday that it charged a former executive at Yahoo! Inc. and a former mutual fund manager at a subsidiary of Ameriprise Financial Inc. with insider trading on confidential information about a search engine partnership between Yahoo and Microsoft Corporation.
The SEC alleged that Robert W. Kwok, who was Yahoo's senior director of business management, breached his duty to the company when he told Reema D. Shah in July 2009 that a deal between Yahoo and Microsoft would be announced soon. Shah had reached out to Kwok amid market rumors of an impending partnership between the two companies, and Kwok told her the information was kept quiet at Yahoo and only a few people knew of the coming announcement. Based on Kwok's illegal tip, Shah prompted the mutual funds she managed to buy more than 700,000 shares of Yahoo stock that were later sold for profits of approximately $389,000.
The SEC further alleges that a year earlier, the roles were reversed. Shah tipped Kwok with material nonpublic information about an impending acquisition announcement between two other companies. Kwok traded in a personal account based on the confidential information for profits of $4,754.
The SEC's press release reflects that Kwok and Shah have agreed to settle the SEC's charges. Although financial penalties and disgorgement will be determined by the court at a later date, Shah will be permanently barred from the securities industry and Kwok will be permanently barred from serving as an officer or director of a public company.
At the end of the press release, the SEC added that in a parallel criminal case Kwok has pled guilty to conspiracy to commit securities fraud, and Shah has pled guilty to both a primary and conspiracy charge. Both are awaiting sentencing.
The financial penalties alone will be interesting, since there are no allegations that Kwok received any money or benefit from tipping Shah, and there is no allegation that Shah directly profited from the tip, since the purchase was made in a mutual fund that Shah managed. However, the Commission may be attempting to use the profits from the reverse tip, of Shah to Kwok and the $4,000 profit there, as the basis for the fines.
SEC Charges Former Yahoo Executive and Former Ameriprise Manager With Insider Trading

Hollywood Movie Producer and Others Charged with Insider Trading - What is Going On Here?

There was a time when insider trading was limited to securities professionals with superior access to information. Then along came the employees in financial printing firms, who has superior access to information regarding tender offers and hostile takeovers. And then it became a thing with loading dock workers, NYC taxi drivers, pizza shop owners, computer repair techs and just about everyone.

Then the SEC cracked down, and at least from my perspective it got quiet. We would see an occasional investigation of a technical analyst who followed a handful of stocks for years and hit it big on two, and others who have been lucky over the years.

But lately, the cases are on the upswing. Recent cases have included traditional insiders - corporate officers andthe occasional attorney - but also hedge fund managers, scientists, and computer hackers. Check out the Insider Trading tag here at the Securities Law Blog for all of these stories on those who have been investigated and/or accused of trading on inside information. The question is, is the upswing the result of more insider trading, or is the SEC becoming more aggressive in investigating insider trading cases.

Of course, simply because the SEC charges someone with insider trading, that does not mean that the defendant actually broke the law. Like most government entities, the SEC is fond of attempting to expand its jurisdiction, and give itself more power. It therefore brings misguided cases on occasion, brought not for its regulatory agenda, but for a political and power agenda. The SEC's ongoing battle with Mark Cuban demonstrates the point. The SEC should lose that case, but it keeps on punching, filing appeals, and moving toward trial. 

Others have noticed the trend as well. One commentator blames it on the regulations arguing that insider trading is governed by rules that are unclear at best and erratically enforced. He also points out that corporate executives, directors and other insiders blab all sorts of undisclosed material information to anyone who wants to know. Take a look at Steve Tobak's editorial at CBS News - Is insider trading still rampant?

And the cases continue. The SEC announced charges against a Hollywood movie producer along with his brother, cousin, and three others in his circle of friends and business partners for insider trading in the stock of a company for which he served on the board of directors.

The SEC alleges that Mohammed Mark Amin, prior to a company board meeting, learned confidential information about expanding business opportunities for DuPont Fabros Technology Inc., which develops and manages highly-specialized and secure facilities that maintain large computer servers for technology companies through long-term leases with them. Amin tipped his brother Robert Reza Amin, cousin Michael Mahmood Amin, and long-time friend and business manager Sam Saeed Pirnazar with nonpublic details about three new leases that DuPont Fabros was negotiating and three loans it was obtaining to develop new facilities. The three illegally traded on the basis of that inside information. Reza Amin went on to tip his friends and business associates Mary Coley and Ali Tashakori, who also illegally traded. Together they made more than $618,000 in insider trading profits when DuPont Fabros stock rose 36 percent after the company issued an earnings release highlighting the development of these new facilities.

The SEC says that they earned $618,000 in profits. They agreed to settle the Mark Amin and the five others agreed to settle the SEC’s charges by collectively paying nearly $2 million.

The SEC's Insider Trading Complaint is at the SEC's website.

Attorney, Trader and Middleman Settle SEC Charges in $32 Million Insider Trading Case

Public telephones, disposable prepaid cellphones and anonymous middlemen. And they still got caught. The SEC announced the settlement of a $32 million insider trading case filed by the agency last year against a corporate attorney and a Wall Street trader.

The SEC alleged that the insider trading occurred in advance of at least 11 merger and acquisition announcements involving clients of the law firm where the attorney — Matthew H. Kluger — worked. He and the trader — Garrett D. Bauer — were linked through a mutual friend now identified as Kenneth T. Robinson, who acted as a middleman to facilitate the illegal tips and trades. Kluger and Bauer used public telephones and prepaid disposable mobile phones to communicate with Robinson in an effort to avoid detection. Robinson, now also charged, cooperated in the SEC’s investigation. Bauer, Kluger, and Robinson each agreed to give up their ill-gotten gains plus interest in order to settle the SEC’s charges. Those amounts under the terms of their consent agreements are approximately $31.6 million for Bauer, $516,000 for Kluger, and $845,000 for Robinson.

I do not know anything about the case other than what is in the press, but it is interesting that the settlement was only a repayment of the gains with interest. The SEC seeks repayment of gains in these cases, plus a two time penalty. Given the fact that when the SEC calculates gains in insider trading cases they mean gains - no deductions for losing trades - that can be a significant sum of money. In settlements, that is negotiated, but repaying gains plus interest is an interesting way to resolve the case. Sounds like the Commission had some problems with their case.

A copy of the original complaint is at the SEC's site.

Attorney, Wall Street Trader, and Middleman Settle SEC Charges in $32 Million Insider Trading Case; 2012-77; April 25, 2012

Related articles, courtesy of Zemanta:

• 3 to Pay $32 Million to Settle S.E.C. Charges of Insider Trading
• Feds probing insider trading by Goldman exec
• Feds probing insider trading by Goldman exec
• Is insider trading still rampant?
• Menlo Park hedge fund manager accused of insider trading in Google, other stocks
• Insider Trading Riddle: Why Do the Rich Risk It?
• Goldman Sachs facing a new insider trading probe
• FBI Building Insider Trading Cases On 120 People - Herald Sun - 28 February 2012

Diamondback Capital Agrees to Settle SEC Insider Trading Charges

The SEC announced that Diamondback Capital Management LLC has agreed to pay more than $9 million ($6 million of allegedly ill-gotten gains and $3 million civil penalty) to settle insider-trading charges brought by the Commission on Jan. 18. As part of the proposed settlement, the Stamford, Conn.-based hedge fund adviser also has submitted a statement of facts to the SEC and federal prosecutors, and entered into a non-prosecution agreement with the U.S. Attorney’s Office for the Southern District of New York. The proposed settlement would resolve charges of insider trading by Diamondback in shares of Dell Inc. and Nvidia Corp. in 2008 and 2009.

“We are pleased to have reached a prompt resolution of the charges against Diamondback,” said George S. Canellos, Director of the SEC’s New York Regional Office. “If approved by the court, we believe that the proposed settlement appropriately sanctions the misconduct while giving due credit to Diamondback for its substantial assistance in the government’s investigation and the pending actions against former employees and their co-defendants.”

Diamondback Capital Agrees to Settle SEC Insider Trading Charges

Ex-Goldman director to face criminal charges

Rajat Gupta, one of the most prominent business executives to be caught up in the government's wide-ranging insider-trading probe, had been named by prosecutors as an unindicted co-conspirator in the criminal case against hedge fund tycoon Raj Rajaratnam earlier this year. According to Reuters, the former Goldman Sachs director, who also was once the global head of elite consultancy McKinsey & Co, will surrender to the FBI on Wednesday to face criminal insider trading-related charges.

Grupta's attorney, Gary Naftalis is quoted in the Reuters article as saying "Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless. The facts demonstrate that Mr. Gupta is an innocent man and that he has always acted with honesty and integrity. He did not trade in any securities, did not tip Mr Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo."

Readers will recall that Rajaratnam, founder of the Galleon Group hedge fund, was convicted in May by a New York federal jury after a two-month trial and was sentenced to 11 years in prison, the longest recorded for insider trading.

Gupta, 62, well-known in the business world after 34 years at McKinsey, had won a seat in 2006 on the board of Goldman. The SEC dropped an administrative case against Grupta in August, but did not give up its ability to sue him civilly. That has not occurred, presumably because of the pending criminal charges.

According to various press reports, the wiretaps on Rajaratnam has him talking about a tip from a board member at Goldman, regarding a pending press release regarding Goldman's historic fourth quarter loss in 2008. Prosecutors presumably believe that the board member is Grupta. That view is bolstered by testimony at Rajaratnam's trial by Goldman's CEO Lloyd Blankfein that Gupta had leaked boardroom secrets, according to Reuters.

Putting those two comments together, there is certainly a basis for a case against Grupta, but the government has a much longer way to go to prove that Grupta leaked material, non-public information. And while it might be true that a defendant does not have to profit from leaking information to be guilty of insider trading, it is going to be extremely difficult to convict someone who might simply be a blabbermouth, if he did not receive anything of value, that is in fact what he did.

Ex-Goldman Direct to Fact Criminal Charges

Line of the Day

Over at Above The Law, they are debating the question of whether insider traders should go to jail. One reason for sending people to jail is deterence. Matt Levine, the editor of DealBreaker, argues that deterrence makes sense, claiming that "[p]eople who work at hedge funds really don’t want to go to jail. Compared to their Greenwich homes, jail has worse food, more violence, and fewer golden retrievers."

True statement, and he finishes with: 

"Also they get ordered around by people with less education than them, which is why they left BofA in the first place."

Is Bank of America so bad that it is now part of a running joke?

Read the whole article, it is a good discussion of the insider trading issue. DealBreaker Debate: Insider Trading Sentencing.

Related articles, courtesy of Zemanta:

• Winnie Jiau, Sentenced To 4 Years In Jail, Will Miss Her Dog
• Craig Drimal Sentenced To 6.5 Years In Jail For Insider Trading
• NY Lawyer Jason Goldfarb Sentenced To 3 Years For Insider Trading
• Former Trader Gets 10-Year Sentence For Insider Trading

Don't Google "Insider Trading" or "10b-5" Before Trading on Inside Information

More insider trading cases from the commission. This time the SEC charges that the defendant used information that he gleaned or stole from his girlfriend who was working for Disney on it acquisition of Marvel Entertainment in 2009.

A slightly different twist on the classic insider trading case. According to the SEC he used his brother's account to make the trades. Did he think that was going to fool investigators? But just before many of his purchases he searched the Internet for terms  such as “insider trading,” “material, non-public information,” and “Rule 10b-5.”So much for a defense of lack of intent or knowledge of the acquisition.

According to the SEC’s complaint the defendant's girlfriend worked on the Marvel acquisition as an extern in Disney’s corporate strategy department, and she possessed confidential details about the pricing and timing of the deal, and the SEC is alleging that the defendant illegally traded on this non-public information in breach of his duty of trust and confidence to his girlfriend.

The misappropriation theory has certainly taken us a long way from the wording of the statute - that the fraud must be in connection with the purchase or sale of a security. 

The SEC Complaint is at the Commission's site.

SEC Charges Former Investment Fund Employee with Insider Trading in Marvel Stock Prior to Disney Deal; 2011-166; August 11, 2011

 

SEC Investigating S&P On Insider Trading Issues

According to a short piece from Reuters his morning, the SEC has asked rating agency Standard & Poor's (S&P) to disclose which employees knew of its decision to downgrade U.S. debt before it was announced last week, the Financial Times said, citing people familiar with the matter. The article also states that the Commission is not aware of a leak, nor is it aware of aberrational trading.

More...

SEC Says Congressional Insider Trading Not Illegal

It is always nice to be told you are right, and having the SEC tell a securities attorney that he is right about a securities law issue is even nicer. Senators buying stock based on non-public information regarding pending legislation is not illegal, and it is not insider trading.

But isn't this the entire point? Why is it permissible for a Senator who is on a committee and who knows, before a public announcement, that the Senate is going to approve a billion dollar program for solar energy, and then buys stock in the two largest solar energy companies?

I am not so sure that the actual instances of this type of trading is as prevalent as the media is making it out to be, but it is certainly outrageous.

Congressional Trading on Advance Info Not Illegal: SEC - CNBC

SEC's Insider Trading Loss Story Has Legs

We posted last week about Sallah & Cox's jury verdict in the SEC insider trading case against Dr. De La Maza. Sallah and Cox defended Dr. De La Maza in the SEC trial after he was charged with insider trading by the Commission.

The defense verdict is a bit unusual - after all, the SEC gets to pick and choose the cases it brings, so it has, almost by definition, a high success rate. However, new reports are coming out criticizing the SEC for the way it handled this matter - and the defamation of Dr. De La Maza.

Walter Pavlo at the Forbes While Collar Crime Blog points out today that at the time of the filing of the complaints the SEC staff made some very strong comments about Dr. De La Maza, comments which might actually be defamatory, including:  “[t]hese individuals traded on confidential information with reckless disregard for the fairness of the markets and utter disrespect for their jobs or close-knit relationships. But their greed left a trail for investigators to follow” and "[t]hese individuals chose money over integrity as they abused their positions of trust and misused privileged information. Whether they learned about the pending mergers through business, family, or friends, they exploited those relationships to make an easy buck.”

I am certainly not an expert on tort law or defamation, but at a minimum, someone owes Dr. De La Maza an apology.

SEC Loses Insider Trading Case — You Can’t Win’em All - Walter Pavlo - White-Collar Crime - Forbes

Related articles, courtesy of Zemanta:

• Insider Trading Not Illegal for Congress and Their Staff - STOCK Act Introduced to Stop Trading on The Congressional Knowledge Act