Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, February 8, 2007

SEC Charges Family Hedge Fund with Insider Trading

The SEC charged seven individuals with engaging in an insider trading scheme that netted over $3.7 million in profits and losses avoided over four years. The defendants include a father and his three sons, a family-run hedge fund, and other relatives and friends. The defendants also include accountants and lawyers at some of the nation's largest firms.

The SEC's complaint, filed in federal court in New York, alleges that the father, Zvi Rosenthal, formerly an executive with Taro Pharmaceuticals Industries, tipped his sons with confidential information concerning at least 13 separate Taro announcements, including earnings results and FDA drug approvals. The family pooled their money into a hedge fund in order to help conceal their trading in Taro securities from detection. In addition to trading in Taro stock and options in advance of the announcements, one of the sons tipped his supervisor at his law firm, a friend who worked at an accounting firm, and his father-in-law. Two of the defendants are also charged with using confidential information obtained from their employers, PricewaterhouseCoopers (PwC) and Ernst & Young (E&Y), concerning two possible mergers.

Mark K. Schonfeld, Director of the Commission's Northeast Regional Office, said, "This case is particularly troubling, not just because this appears to have been a 'family business' built on insider trading, but also because the defendants include accountants and lawyers at prominent firms. These are professionals who understand their obligation not to use confidential information for their own benefit."  See SEC Charges Family-Run Hedge Fund With a $3.7 Million Insider Trading Scheme.

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