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

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Saturday, November 13, 2010

SEC Charges Additional Defendants in Insider Trading Rings

The SEC announced that it had charged additional defendants in its ongoing investigations related to two enforcement actions, SEC v. Galleon Management, LP, et al., 09-CV-8811 (S.D.N.Y.) (JSR) and SEC v. Cutillo, et al., 09-CV-9208 (S.D.N.Y.) (RJS). The insider trading rings identified in these enforcement actions include several prominent hedge funds, high-profile hedge fund managers, Wall Street professionals such as attorneys, professional traders, and senior corporate executives.

In a complaint related to SEC v. Galleon, the SEC today charged Thomas Hardin, a former managing director at a New York-based hedge fund investment adviser, Lanexa Management LLC, for insider trading in connection with two corporate takeovers and a quarterly earnings announcement. The illicit profits at Lanexa resulting from Hardin's conduct alleged in this filing exceed $950,000. 

The SEC's complaint alleges that Khan tipped Hardin to inside information she received from a Moody's rating agency analyst, about an impending takeover of Hilton by The Blackstone Group. According to the allegations, Hardin traded on the information on behalf of Lanexa and also passed the information to others, who similarly traded on the information. Khan also shared with Hardin inside information she received from an employee at Market Street Partners, an investor relations consulting firm that did work for Google, about Google's Q2 2007 earnings. Hardin traded on the information on behalf of Lanexa and also tipped others. Finally, Khan tipped Hardin to inside information she received about the impending acquisition of Kronos by Hellman & Friedman. Hardin traded on the information on behalf of Lanexa and also tipped others, who traded on the information.

In separate complaints related to SEC v. Cutillo, et al., the SEC charged Mr. Hardin as well as two other defendants, Lanexa Management LLC, and former Schottenfeld Group LLC trader Franz Tudor, for insider trading in connection with corporate acquisitions. The illicit profits alleged in these filings total approximately $715,000. In its latest enforcement action in this matter, the SEC alleges that a Lanexa-managed hedge fund and Hardin reaped approximately $640,000 in illegal profits by insider trading based on confidential information about an impending acquisition involving 3Com Corp. The SEC also alleges that Tudor made approximately $75,000 in illicit profits by trading on material, nonpublic information concerning the proposed acquisition of Axcan Pharma Inc.

According to the SEC's complaint against Lanexa Management and Hardin, filed in federal court in Manhattan, the inside information about the 3Com acquisition that was obtained by Hardin was derived from Santarlas and Cutillo, who were privy to the confidential details through their work at the international law firm of Ropes & Gray LLP. Cutillo and Santarlas allegedly tipped this inside information through another attorney to Zvi Goffer, a former proprietary trader at Schottenfeld, in exchange for kickbacks. Goffer then tipped the inside information to fellow Schottenfeld trader Gautham Shankar, who then tipped Hardin. Goffer, Shankar and Schottenfeld were among those previously charged for their roles in the insider trading rings.

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