Thursday, June 28, 2007

Three Former Executives Plead to Insider Trading in Their Company

The U.S. Attorney's Office for the Central District of California announced that three former vice presidents at mortgage lender Countrywide Financial agreed to plead guilty to one count of securities fraud for trading on inside information about the prospect of the company not meeting earnings projections.  According to a press release (here), the defendants sold their shares in the company, and also sold put options and shorted the stock to take advantage of the bad news that caused Countrywide's shares to fall over 11% after its disclosure.  "As a result of the scheme, Cao realized profits of approximately $47,668. Zhu's total illegal profits from the tips he received from Cao was $35,547. And, Shi realized illegal profits totaling $19,995."  The profits were relatively small and usually would not seem to merit a criminal prosecution -- and two of the defendants settled an SEC case in 2006 (Litigation Release here) by disgorged their profits along with paying a civil penalty.  But the fact that the defendants were aggressive in their trading by using put options and short sales, and their positions at the company, likely triggered the interest of federal prosecutors.  The focus on insider trading is certainly growing on both the civil and criminal side these days. (ph)

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Insider Trading, Prosecutions | Permalink

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