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Univ. of Toledo College of Law

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Wednesday, December 16, 2009

SC Charges Two Former Employees at Financial Services Firms with Insider Trading

The SEC today charged Vinayak S. Gowrish, a former associate at multi-billion dollar private equity firm TPG Capital L.P., and Adnan S. Zaman, a former vice president and investment banker at Lazard Frères & Co. LLC, and two of their friends in a serial insider trading scheme to profit on confidential merger and acquisition information.  According to the SEC, Gowrish and Zaman stole confidential information from their firms in connection with five deals and tipped two friends in exchange for kickbacks. Pascal S. Vaghar and Sameer N. Khoury both then traded stock and options on the basis of the nonpublic information and made nearly $500,000 in illicit profits.

According to the SEC's complaint, filed in U.S. District Court for the Northern District of California, Gowrish misappropriated and illegally tipped material, nonpublic information that TPG was in negotiations to acquire Sabre Holdings Corp., TXU Corp., and Alliance Data Systems Corp. Gowrish illegally tipped this information to Zaman, who then tipped the inside information to Vaghar and Khoury. The SEC further alleges that Zaman misappropriated and illegally tipped material, nonpublic information that Lazard clients were in negotiations to acquire webMethods, Inc. and Myogen, Inc. Zaman tipped the information to Vaghar and Khoury through in-person meetings or by writing trading instructions — including the ticker symbol of the call option (or stock) and the number of contracts (or shares) to purchase — on yellow sticky notes. Coded text messages were used to exchange trading instructions. In exchange for the confidential information, Gowrish received cash kickbacks from Vaghar, and Zaman received kickbacks in the form of cash, free rent, and other items of value from Vaghar and Khoury totaling approximately $70,000.

Zaman, Vaghar, and Sameer Khoury have offered to settle to full injunctive relief and disgorgement, and Zaman has agreed to be permanently barred from associating with any broker or dealer. In addition, Sameer Khoury's brother, Elias Khoury, who is not accused of any wrongdoing, consented to the entry of a final judgment ordering him, as a relief defendant, to disgorge the profits from trades Sameer Khoury executed in his account. The Commission is seeking permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of financial penalties against Gowrish.

http://lawprofessors.typepad.com/securities/2009/12/sc-charges-two-former-employees-at-financial-services-firms-with-insider-trading.html

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Comments

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