Monday, October 22, 2007
A partner in the New York office of Baker & McKenzie and five other defendants were charged with conspiracy, securities fraud, and money laundering that totaled $55 million, according to a nineteen-count indictment returned on August 30 but only unsealed on October 19 (available below). The case involves so-called PIPE transactions, which are private-investment-in-public-equity deals that allow unregistered stock to be acquired in publicly-traded companies at below market prices because they are a cheap source of capital for the issuer. The other defendants are three officers of the public companies, which have gone into bankruptcy, and two investors from Israel. According a press release issued by the U.S. Attorney's Office for the Eastern District of New York (here):
The indictment alleges that EDWARD and STEVEN NEWMAN, BROWN, and WEISBERG caused Xybernaut and Ramp, two publicly traded companies, to issue hundreds of millions of heavily discounted shares through private investments in public equity, or “PIPE” transactions, to dozens of offshore nominee entities created and secretly controlled by SALTSMAN and EITAN. In order to lock in profits, SALTSMAN and EITAN sold the shares “short” in advance of the PIPE transactions and later “covered” the short positions with the discounted stock.
The U.S. Attorney's Office noted that one of the defendants was arrested in London prior to the unsealing of the indictment, and another was arrested in Virginia. Another defendant is residing in Israel, and prosecutors will seek the extradition of the foreign defendants, while arrest warrants have been issued for two other defendants.
Baker & McKenzie announced that the partner had been placed on leave after the announcement of the indictment. A New York Law Journal story (here) discusses the indictment. (ph)