Wednesday, September 4, 2013
First day of classes...this semester, I've brought the traveling roadshow down Commonwealth Ave to BU. They will soon get to know what I think about the following topic... Sam Waksal - (memba him?!) is now out and about and making the rounds on Bloomberg TV. He calls his insider trading conviction a "personal event." Okay, then. Thankfully, his insider trading conviction appears to have changed his approach to business...
Monday, July 1, 2013
Maybe it's just me, but there have got to be other fish in the sea. You want my advice? Don't marry him, dump him. He's a bum.
On July 1, 2013, the Securities and Exchange Commission announced that it charged a former officer of The Dow Chemical Company (Dow), his long-time friend, and a broker with insider trading that generated more than $1 million in illicit profits based on confidential information ahead of Dow's acquisition of Rohm & Haas Co. (Rohm)....
The SEC's complaint alleges that [Mack] Murrell, who was the Vice President of Information Systems for Dow, obtained confidential details about the acquisition of Rohm from his then live-in girlfriend, now wife, who was the administrative assistant to Dow's Chief Financial Officer at the time. Murrell's girlfriend knew about and worked on the pending acquisition. The complaint alleges that the day after learning from his girlfriend of a special Board meeting at which the Rohm acquisition was discussed, Murrell tipped his long-time friend [David] Teekell during a telephone call. Immediately following the telephone call, Teekell called [Charles] Adams, his broker at Raymond James, and tipped him.
The complaint further alleges that the next business day after learning of the pending acquisition, Teekell and Adams began purchasing common stock and call options in Rohm. In addition to purchasing call options in his own account, Adams purchased stock in two discretionary customer accounts. Teekell's and Adams' purchases continued until the day before the acquisition announcement on July 10, 2008, when the price of Rohm stock jumped 64 percent. Teekell made an illicit profit of $534,526 and Adams and his discretionary customers made illicit profits of $107,043 through the insider trading. Raymond James made illicit profits of $373,497 when Teekell and Adams decided not to keep certain Rohm options that Adams had purchased in Teekell's account.
Here. Call options...again with the call options...sheesh.
Thursday, June 6, 2013
This came across the Twitter-machine while I was sitting in the 8th Annual Carroll School Finance Conference this morning:
The Securities and Exchange Commission today announced an emergency court order to freeze the assets of a trader in Bangkok, Thailand, who made more than $3 million in profits by trading in advance of last week's announcement that Smithfield Foods agreed to a multi-billion dollar acquisition by China-based Shuanghui International Holdings.
OK, so this guy is an idiot of huge proportions. Why? Well, because he was asking to get caught. It's really, really awful. OK, so first and foremost. This guy doesn't have a trading account until May 10 when he opened one. It seems he was in quite a hurry to get started trading, too. According to the complaint:
On May 17, 2013, Rungruangnavarat e-mailed Interactive Brokers and inquired whether the account was open. Rungruangnavarat wrote: "Please let me know if the account opening is done, so i can start funding the account. I want to trade US options, so please confirm if my account is readily trad-able [sic]."
R. then funded the account to the tune of $2.92 million. He immediately started trading -- however, only exclusively in Smithfield call options and futures. Nothing else. OK, so he's a little single minded.
And when R. traded, he swamped the market - making up almost 80% or so of all July 29 call options and 99%(!) of all July 30 call option trades cleared in the month of May. What?! That's right, he might as well have put a "kick me" sign on his butt. If that weren't enough, R. also purchases Smithfield futures. There his purchases were 100% of the total cleared market. Ugh. He cornered the market in Smithfield options and futures and made a 3,400% when the acquisition was announced.
OK, so maybe he is just a bright guy sitting in Bangkok with a good idea. Yeah, maybe. The SEC complaint drops this little tidbit:
Rungruangnavarat has a Facebook friend who is a former employee ofthe company where Rungruangnavarat works, and who is an associate director at the Thai investment bank that advised Charoen on its contemplated Smithfield bid.
Bit in the ass by Facebook. Idiot.
Friday, January 4, 2013
You remember that former Wilson, Skadden, Cravath, Fried Frank associate who pleaded guilty to insider trading last year? He got 12 years. Oh, and he just got disbarred, too. Word to the wise starting a new career...
Monday, November 26, 2012
Tuesday, November 20, 2012
Be careful when you start thinking like this:
"At the end of the day, the SEC's got to pick their battle because they have a limited number of people and a huge number of investors to go after."
Chances are, once the SEC picks that up, you'll be next. That's the lesson this group of high school buddies is learning now.
Here's the complaint.
Friday, September 28, 2012
OK, so you've heard this from me before....and this is directed at all those juniors about to start. Don't do it. Sure, there are lots of academic debates about why insider trading is ok. I get that. But don't do it. Today's installment: idiot former investment analysts. Did you pick that up? Former. In any event, the SEC just charged Jason Lee and his friends from college, one of whom lived in the saame condo complex with him, with insider trading. The complaint itself is full of lots of cicumstantial evidence. It doesn't look like the giovernment had access to a wiretap or that any of the alleged co-conspirators has flipped, so the case is a series of internal investment emails lining up with times of cell phone calls and text messages, the kind of stuff you get from a pen register, and bank cash withdrawals and deposits.
In any event, this is where everything seems to go really south for Jason Lee:
OK, so a decision point for Lee. Come clean and say that you know Chen. Or ... well ...
Yeah ... this isn't going to turn out well. Don't do it. It's not a good career choice. Ok, off my soapbox.
Thursday, August 2, 2012
OK ... I know I've said that if you are going to trade on inside information that you should trade in call options, cause you're just going to swamp the market and put a target on your back. But, here's a tip I thought I wouldn't have to give you. If you are going to trade on inside information, please don't use your work computer to do the following searches:
"can option be traced to purchaser?"
"can stock option be traced to purchase inside trading"
"how to detect can stock option be traced to purchase inside trading"
"insider trading options"
"insider trading options trace"
"illegal insider trading options trace"
"insider trading options trace illegal"
Can you say "scienter"?
You'd think it would go without saying, but apparently not everyone is smart enough to simply not trade on inside information. In fact, some people are stupid enough to do internet research from the office computers before doing the deed. You think I'm kidding? Well, the SEC has just charged a Bristol-Meyers-Squib executive with trading on inside information in advance of a series of acquisitions.
Just don't do it.
Wednesday, May 9, 2012
What?! You think only lawyers can be idiots? The first two paragraphs of the SEC's complaint tells you more than you need to know:
This case involves insider trading in the securities of Semitool, Inc., a semiconductor manufacturer based in Kalispell, Montana that was acquired in a tender offer by Applied Materials, Inc. in December 2009. Beginning in at least October 2009, defendant Angela Milliard, a legal assistant at Semitool, learned confidential information regarding the terms and timing of the acquisition. Basedon this information, Angela Milliard secretly wired $38,000 to her boyfriend's account and purchased 5,400 Semitool shares in the account, as well as 300 Semitool shares in her own brokerage account. Angela also tipped her father, defendant Kenneth Milliard, about the then-secret acquisition, and he purchased 10,800 Semitool shares and helped other family members purchase another 4,000 Semitool shares.
When the acquisition was publicly announced on November 17, 2009, the company's stock price jumped over 30 percent, and defendants immediately profited that day, selling all of their Semitool shares for total realized profits of $68,160.
This being the end of exams and the start of graduation season, I suppose it's as good a time as any to give some good advice to recent law grads. This year, I'll give it in the form of a link to a memo written seven years ago to employees of public corporations, titled Your Future (or Lack Thereof).
Thursday, February 23, 2012
Wednesday, February 22, 2012
I don't usually troll the Fox Biz sites, but this caught my eye. Apparently, the recent insider trading investigations are far from over. According to Charlie Gasparino, the DOJ/SEC have only just begun:
--They have “scheduled out” cases for the next five years, meaning that the use of wire taps and informants have netted far more cases than they had originally thought.
--Though it’s difficult to predict future case loads, law enforcement officials are in general agreement that “hundreds” of additional people could be charged in the years ahead. “In five years, we can easily see hundreds of people arrested and charged,” another senior law enforcement official told FOX Business.
Scheduled out for years? Wow.
Thursday, February 9, 2012
Wednesday, January 18, 2012
You can watch Preet Bharara's press conference announcing the Galleon 2.0 insider trading arrests here (1:00pm, ET):
"A circle of friends who formed a lucrative club...to make $62 million in profits ..." That's as big as Galleon. That made all that money on trades related to Dell. Wow.
Three of the seven defendants have already pleaded guilty and are cooperating.
Bharara says that the group's trading in advance of Dell earnings announcements was "the big illegal short". Too cute.
"But cheating on the test and getting away with it are two different things."
Here is the civil complaint filed by the SEC against Level Global, Diambondback Capital, and the seven individual defendants in the criminal case.
Tuesday, January 17, 2012
In their new paper, Hedge Funds in M&A Deals, Dai, et al find evidence "consistent with informed abnormal short selling" by hedge funds prior to M&A announcements. The authors observe larger stakes where there is evidence of private information. I'm shocked. ... Actually I'm not really shocked, given what's come out over the past year or two.
Abstract: This paper investigates recent allegations regarding the misuse of private insider information by hedge funds prior to the public announcement of M&A deals. We analyze this issue by using a unique and comprehensive data set which allows us to analyze the trading pattern of hedge funds around corporate mergers and acquisitions in both the equity and derivatives markets. In general, our results are consistent with hedge funds, with short-term investment horizons (henceforth, short-term hedge funds) taking advantage of private information and engaging in trading based on such information. We show that short-term hedge funds holdings of a target’s shares in the quarter prior to the M&A announcement date are positively related to the profitability of the deal as measured by the target premium. In addition, we also find that the target price run-up before the deal announcement date is significantly greater for deals with greater short term hedge fund holdings. We also find evidence consistent with informed abnormal short selling and put buying in the corresponding acquirer’s stock prior to M&A announcements. This is particularly evident when hedge funds take larger stakes in target firms. In addition, we show that such a strategy is potentially very profitable. We consider alternative explanations for such short term hedge fund holdings in target firms; however our results seem inconsistent with these alternative explanations but rather, seem to be consistent with trading based on insider information. Overall, our results have important implications regarding the recent policy debate on hedge fund regulation.
Wednesday, January 11, 2012
After Calix, Inc. announced its acquisition of Occam Networks, Inc. in September 2010 the by now usual lawsuit appeared to challenge the transaction. One of the representative plaintiffs in this case was Michael Steinhardt, a hedge fund investor, described as "one of the most successful investors in the history of Wall Street" and an Occam shareholder. The suit alleged that the directors of Occam violated their fiduciary duties to the corporation when they agreed to sell the corporation to Calix at an "unfair price." OK, so far, so good. Well, not good, but expected. You know what I mean. In any event, the plaintiffs pursued their case and were permitted to take discovery subject to a confidentiality order. That order read, in part:
Confidential Discovery Material, or information derived therefrom, shall be used solely for purposes of this Litigation and in an appraisal proceeding that Plaintiffs in this Litigation may file . . . . Confidential Discovery Material shall not be used for any other purpose, including, without limitation, for any business or commercial purpose or for any other litigation or proceeding. Confidential Discovery Material Parties and non-parties who receive Confidential Discovery Material shall not purchase, sell, or otherwise trade in the securities of any company, including but not limited to Occam and Calix, on the basis of confidential information contained in the Confidential Discovery Material to the extent such information is still confidential at the time of such purchase, sale or trade.
Of course, with an order like this and with sophisticated investors like Steinhardt, you can only guess what happened next. That's right, after Steinhardt was in possession of confidential information (via one of his co-plaintiffs) he began to short Calix common stock. When the Calix defendants found out that Steinhardt had shorted their stock they moved in the Delaware Chancery Court for sanctions against him.
Last Friday, Vice Chancellor Laster sanctioned Steinhardt for trading in violation of the confidentiality order (Steinhardt Sanctions Opinion). The sanctions Steinhardt and his funds for improper trading include:
(i) dismissal from the case with prejudice and barred from receiving any recovery from the litigation;
(ii) requirement to self-report their improper trading to the SEC;
(iii) requirment to disclose their improper trading in any future application to serve as lead plaintiff; and
(iv) an order to disgorge their trading profits (approximately $500,000).
Lesson? If you are going to be a representative plaintiff in one of these transaction related lawsuits, you can't trade in the stock of the either the acquirer or the target during the pendancy of the litigation. That seems pretty straightforward. You'd have thought Steinhardt would have already known that.
Wednesday, December 14, 2011
Thursday, December 1, 2011
Brien Santarlas who along with another former Ropes & Gray lawyer, Arthur Cutillo ,was convicted as part of the Galleon insider trading investigation was sentenced yesterday to 6 months in prison. Cutillo was previously sentenced to 30 months in prison. Here's the original criminal complaint in that case (US v Goffer, et al).
Monday, November 14, 2011
What would you do if Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson gave you a confidential briefing on the day before the 2008 financial crisis - a briefing in which they said everything was going to hell? Well, if you are Rep. Spencer Bachus (R-AL) the anwer is clear - you rush out and buy Proshares Ultra-Short QQQ the next day.
I suppose insider trading is illegal unless you are congressman. Unfortunately, this isn't even a new story! See papers from Donna Nagy and Stephen Bainbridge on congressional insider trading. Moving on.
Wednesday, October 26, 2011
Raj Gupta was arrested early this morning at his home by FBI agents and has been charged with insider trading as part of the Galleon investigation. He posted $10 million in bail and was released this afternoon. Here's the criminal complaint.
Tuesday, October 18, 2011
It looks like the Galleon investigations and trials are wrapping up. Raj Rajaratnam was sentenced last week to 11 years. Danielle Chiesi just started her 30 month sentance at "Camp Cupcake". Octopussy got 10 years, and his fellow small fish (Cutillo, Goldfarb, etc) got prison terms ranging from 2.5 to 3 years. The prosecutors wanted to send a message about insider trading and it's fair to say that ... well ... message sent. With the help of data collected by the WSJ, I generated the sentencing chart below:
It seems pretty clear that the sentences generated in the Galleon cases while not outrageous, are stiffer than the norm since 1992. It's worth noting the other 10 year insider trading sentence handed out went to Hasif Naseem who orchestrated a ring with friends overseas to trade ahead of pending merger announcements in the following transactions: TXU Corp., Hydril Company, Trammell Crow Co., John Harland Col, Energy Partners Ltd., Veritas DGC Inc., Jacuzzi Brands, Caremark Rx, Inc., and Northwestern Corporation. So, the Rajaratnam sentence, though heavy, may not be entirely at odds with sentences handed out in similar cases in recent years.