M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Thursday, November 5, 2009

More Bad Lawyers...

The Galleon case takes more scalps.   From the SEC's litigation release.

The Securities and Exchange Commission today announced insider trading charges against nine defendants in a case involving serial insider trading by a ring of Wall Street traders and hedge funds who made over $20 million trading ahead of corporate acquisition announcements using inside information tipped by an attorney at the international law firm of Ropes & Gray LLP, in exchange for kickbacks. The SEC alleges that Arthur J. Cutillo, an attorney in the New York office of Ropes & Gray, misappropriated from his law firm material, nonpublic information concerning at least four corporate acquisitions or bids involving Ropes & Gray clients — the 2007 acquisitions of Alliance Data Systems Corp. ("ADS"), Avaya Inc. ("Avaya"), 3Com Corp. ("3Com"), and Axcan Pharma Inc. ("Axcan").

The SEC's civil complaint describes the scheme in detail, including a nice paragraph describing their "trade-craft": 

Arthur Cutillo is an attorney at the international law firm of Ropes & Gray. He has worked in the firm's New York office since 2005. Throughout 2007, he had access to, and learned of material nonpublic information concerning corporate acquisitions in which Ropes & Gray represented acquirers or bidders in proposed acquisitions. Cutillo owed a fiduciary or other duty of trust and confidence to Ropes & Gray and its clients to keep this information confidential and not to disclose or personally use this information.

...

Zvi [Goffer, former Galleon employee] traded on-this inside information and had numerous downstream tippees who also traded. As part of this illegal trading scheme, Cutillo, [Jason] Goldfarb, and Zvi at times used disposable cell phones in an attempt to conceal the scheme. For example, prior to the announcement of the 3Com acquisition, Zvi gave one of his tippees a disposable cell phone that had two numbers programmed in it labeled "you" and "me." After the announcement of the 3Com acquisition, Zvi destroyed the disposable cell phone he had provided the tippee by removing the 8IM card, biting it, breaking the phone in half) throwing away half of the phone, and instructing his tippee to get rid of the other half of the phone. 

I like the bit about the cell phones.  Clearly, these guys have been watching TV. One thing they didn't do was pay attention in law school when they should have learned about their obligations to clients and the insider trading rules.  Cutillo is a 2005 law school grad - four years.  That's a very short legal career.  I wonder what he'll do with the rest of his life.  

-bjmq


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