Thursday, May 27, 2010
This week the FBI arrested the administrative assistant to a high-level Disney executive and her boyfriend. Turns out they were not the smartest couple of inside traders out there. The SEC’s complaint speaks for itself:
9. Beginning in early March 2010, various hedge funds, including several in New York, received letters from an anonymous sender claiming to be able to obtain pre-release access to Disney’s 2Q-2010 quarterly earnings report and offering to share such information prior to its public release for a fee. The letters, post-marked from Los Angeles, California, stated:
Hi, I have access to Disney’s (DIS) quarterly earnings report before its release on 05/03/10 [sic]. I am willing to share this information for a fee that we can determine later. I am sorry but I can’t disclose my identity for confidentiality reasons but we can correspond by email if you would like to discuss it. My email is firstname.lastname@example.org. I count on your discretion as you can count on mine. Thank you and I look forward to talking to you.
10. At least twenty hedge funds, including funds based in several U.S. states and European countries, received the same or substantially the same letter
Discretion. Right. Randomly sending letters out to hedgefunds advertizing an offer to engage in insider trading ahead of earnings calls – that’s discretion? Of course multiple hedge funds forwarded this letter on to the FBI and they promptly set up a sting operation. The substance of the negotiation between the hapless boyfriend and the FBI went something like this:
• “First of all, i am not a fed, I have no way to prove it at this point but i am not asking you to disclose your identity not i will disclose mine. It is up to you to determine if this is worth the risk as i did. I work for Disney, that is all i can tell you.”
But did he ask them if the guys on the other end of the e-mail were Feds? Apparently not.
• As i said in my letter, i am able to get the earnings report of Disney 3 to 4 days before they are out. I will be happy to email them to you for a fee that you can pay after you close your trades. Let me know if you are interested and how much i will get from you for this transaction. Also, i am looking to build a relationship for future earnings and other insider news.”
• I am not asking for any payment up front, i will email you the earnings report and you can pay me after. I was thinking that $20000 is a fair compensation but you are free to make an offer.”
• I am very serious and i will show you that very soon. $15k sounds great and $30k even better as i hope you will make a killing from Q2 earnings. I promise i will keep you informed of any unanticipated event, i keep my ears wide open here.”
And just how profitable was this alleged scheme for the administrative assistant who apparently risked her career and may end up going to jail? She allegedly did it for a handbag and shoes.
[Bonnie] Hoxie stated “here is the bag that you are going to get for me – thank [sic],” and attached a link to a picture of an expensive Stella McCartney designer handbag available for $700 at Neiman Marcus, an upscale department store. Sebbag replied that he would get Hoxie the bag “next week.” Anticipating that they would receive substantial compensation from the Putative Traders, Sebbag stated “I may be able to [buy] u 2 of them, lol.” Hoxie responded via email, “In that case, i also love love these shoes” and attached a link to a picture of expensive Stella McCartney shoes also sold at Neiman Marcus.