Tuesday, April 11, 2006

Insider Trading Ring Charged with Criminal and Civil Violations

Federal prosecutors and the SEC filed new criminal and civil insider trading charges in a case that grew out of suspicious trading in shares of Reebok in August 2005 right before the announcement of a friendly takeover by Adidas.  A short time later, charges were filed against David Pajcin, who worked at Goldman Sachs and is the nephew of a woman in Croatia who was the name on the account that traded Reebok stock and call options.  Pajcin was also charged with insider trading based on reviewing advance copies of Business Week, an old insider trading ploy that seems to crop up every few years.  Pajcin has cooperated with the authorities, and a wide-scale insider trading operation has come to light that generated profits of over $6 million.  The two lead players are Pajcin and Eugene Plotkin, who worked with Pajcin at Goldman and was most recently in the firm's Fixed Income Research division -- and I suspect he was terminated from that position as soon as the news hit the wire.  The scheme had two prongs, with information coming from a junior analyst at Merrill Lynch about deals in that firm's shotpand another pipeline into the printing plant for Business Week.  The SEC's litigation release (here) summarizes the two aspects of the insider trading operation:

The Merill Lynch Scheme:

The Complaint alleges that Plotkin and Pajcin infiltrated the investment banking unit of Merrill Lynch, repeatedly learning of mergers and acquisitions transactions before they became public. In exchange for a share of the illegal profits, Stanislav Shpigelman (“Shpigelman”), an analyst at Merrill Lynch, leaked confidential information to defendants Plotkin and Pajcin concerning at least six mergers or acquisitions that Merrill Lynch was working on, prior to the time the deals became public, including deals between (i) The Proctor & Gamble Company and The Gillette Company; (ii) Novartis AG and Eon Labs, Inc.; (iii) Duke Energy and Cinergy Corp.; (iv) Quest Diagnostics, Inc. and LabOne, Inc.; (v) Celgene Corp. and a company considering acquiring Celgene; and (vi) Reebok and Adidas. Plotkin and Pajcin traded on the insider information and passed the insider information on to individuals in the United States and Europe (“Traders”) who traded on it. Plotkin and Pajcin had an agreement with the Traders, pursuant to which they were to receive a percentage of the illicit profits made by the Traders. The Merrill Lynch Scheme yielded over $6.4 million in illicit trading profits.

The Business Week Scheme:

The Complaint further alleges that Plotkin and Pajcin also infiltrated one of the printing plants utilized by Business Week, repeatedly obtaining advance copies of the market-moving IWS [Inside Wall Street] column in Business Week. Plotkin and Pajcin recruited two individuals — first, Nickolaus Shuster (“Shuster”), and later Juan C. Renteria, Jr. (“Renteria”) — to obtain employment at Quad/Graphics, Inc., one of four printing plants that print Business Week magazine, for the sole purpose of stealing copies of upcoming editions of the magazine, and calling Plotkin or Pajcin to read them key portions of IWS — a widely-read column in the magazine that generally moves the price of the securities of companies mentioned in it – prior to the time the column became available to the public. The Complaint alleges that Shuster and Renteria provided Plotkin or Pajcin with insider information concerning at least twenty companies that were featured in the IWS column. Plotkin and Pajcin then either traded on the IWS insider information or passed the information to some or all of the Traders, who traded on the insider information. The Business Week Scheme yielded over $345,000 in illicit trading profits. here) discusses the charges. (ph)

All of the main players are in their 20s, with Pajcin the oldest at 29, although this is much more than a youthful indiscretion.  Plotkin and Shpigelman were arrested in New York on the criminal charges.  If the charges are proven, their  careers on Wall Street were over before lunch was served.  A Reuters story (here) discusses the charges, and the criminal complaint is available (here) on Findlaw. (ph)

http://lawprofessors.typepad.com/whitecollarcrime_blog/2006/04/broad_insider_t.html

Civil Enforcement, Insider Trading, Prosecutions, Securities | Permalink

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