Tuesday, June 2, 2009

UK Looking at Lawyers

The US may not be the only government entity proceeding against lawyers, as the UK Financial Services Authority seems to also be heading in this direction.  See James Lumley and Caroline Binham, Bloomberg, Lawyers at U.S. Firms Face FSA Insider-Trading Case


June 2, 2009 in Insider Trading, International, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Friday, March 20, 2009

Nacchio Files Petition for Cert

Joseph P. Nacchio, former CEO of Qwest Communications filed a Petition for Certiorari in the U.S. Supreme Court.  He argues that the Tenth Circuit decision (en banc) conflicts with other circuits.  The decision in the 10th Circuit was split 5-4 (see here and here).  The issues presented in this Cert Petition are:

"1. Whether the defendant is entitled to acquittal or a new trial because the Tenth Circuit, in conflict with the standards applied in other circuits, erred by upholding the jury instructions bearing on the materiality of the type of information at issue, and by holding that there was sufficient evidence that the defendant failed to disclose material information and knew it.

2. Whether the judgment must be reversed and remanded for a new trial because the Tenth Circuit approved the use of impermissible procedures for the exclusion of expert testimony under Rule 702 that conflict with decisions of other circuits.

3. Whether the Tenth Circuit’s decision should be summarily reversed because it misapplied decisions of this Court, mischaracterized the district court’s reasoning, failed to resolve all the issues presented, and held that Nacchio failed to address an issue that was a principal focus of his brief."

There are several important issues in this case, such as whether a charge of insider trading is proper when "the allegedly material 'inside' information consisted of internal corporate risk assessments about financial results for future quarters." Another key issue in this case is the failure to admit the testimony of a defense witness.  With Daubert and rules related issues to consider, the importance of a defendant to present his or her defense is considered here.

Petition for Certiorari here - Download Nacchio Cert Petition


March 20, 2009 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 25, 2009

Nacchio Conviction Reinstated

The Tenth Circuit en banc reinstated the convictions of former CEO of Qwest Communications International, Inc. (See opinion)  A prior panel had found it improper to exclude defense expert testimony.  In a 104 page decision (52 page majority), 5 judges on the Tenth Circuit held that "the district court's exclusion of the testimony was not arbitrary, capricious, whimsical, or manifestly unreasonable: nor are we convinced that the district court made a clear error of judgment or exceeded the bounds of permissible choice in the circumstances."

Four members of the court dissented.  The dissent states, "[t]he flaw in the government's argument is that the rules of criminal procedure, unlike the rules of civil procedure, do not require a criminal defendant to establish the foundation for expert testimony through advance written submissions." Circuit Judge Kelly, writing an additional dissent has a classic opening line - "[i]t is indeed unfortunate that the court chooses expediency over due process." 

The real question may be whether the Supreme Court grants a request to review, and whether they find that due process requires the defense be given the opportunity to present their its case. I can't help but remember these words from the case of Washington v. Texas, 388 U.S. 14, 19 (1967):

"The right to offer the testimony of witnesses, and to compel their attendance, if necessary, is in plain terms the right to present a defense, the right to present the defendant’s version of the facts as well as the prosecution’s to the jury so it may decide where the truth lies. Just as an accused has the right to confront the prosecution’s witnesses for the purpose of challenging their testimony, he has the right to present his own witnesses to establish a defense. This right is a fundamental element of due process of law."

See also Dionne Searcey, WSJ Blog, Tenth Circuit Upholds Nacchio's Conviction; Prison Time Likely Awaits ; Andy Vuong, Denver Post, Full Court Upholds Nacchio Insider Trading Conviction

(esp)(w/ a hat tip to Peter Henning)

February 25, 2009 in Insider Trading, Judicial Opinions | Permalink | Comments (2) | TrackBack (0)

Sunday, July 20, 2008

The Latest on Sam Waksal - ImClone's Founder

For cancer patients, any word of the possible release down the road of Sam Waksal is likely to be celebrated.  The latest word on his status is seen in an article by Beth Landman in the Intelligencer titled, Sam Waksal's Return to New York.

Waksal was the founder of ImClone, a company that produced a drug called Erbitrux. But the FDA's initial disapproval and his activities following that disapproval led to his conviction for insider trading. He stepped down as President and CEO in 2002 stating:

"Serving as Chief Executive Officer of ImClone Systems has been an honor and a privilege for the past eighteen years. In light of recent events and the distractions they have caused, I am withdrawing myself from the daily operation of the Company in the confidence that ImClone Systems will be able to maintain its focus on the advancement of our clinical development and research programs. I fully believe that our product candidates, the most advanced of which is ERBITUX(TM), will have a profound effect on the way that patients with cancer are treated." (see here)

The sad part of the events is that Waksal was thereafter incarcerated.  The FDA finally approved ImClone's drug in 2004 (see here), but Waksal went to prison.

It is good to see that he may be able to return to assisting the development of cancer drugs.  Those who go to prison are likely to be changed by the experience, but few are able to leave with little damage to their reputation.  Whether Sam Waksal is in this select group remains to be seen. 

(esp)(w/ a hat tip to Jack King) 

July 20, 2008 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Thursday, February 28, 2008

Two More Plead Guilty to Insider Trading

Two more defendants, one an officer at UBS, pleaded guilty to insider trading.  According to a press release (here) issued by the USAO for the Southern District of New York:

Between December 2001 and August 2006, GUTTENBERG repeatedly sold to TAVDY and another individual material,nonpublic information regarding upcoming upgrades and downgrades in UBS analysts’ securities recommendations. Investors, including institutional investors and professional money managers, regularly relied on UBS analysts’ ratings of public companies’ securities.  As a result, changes in UBS analysts’ recommendations regarding a particular company’s securities were material to investors and often had a direct effect on the trading price of that company’s stock.

The two defendants were among thirteen charged with insider trading that included employees from Bank of America, Morgan Stanley, and Bear Stearns in addition to UBS.  Only one defendant is still awaiting trial as all the others have now entered guilty pleas. (ph)

February 28, 2008 in Insider Trading | Permalink | Comments (1) | TrackBack (0)

Thursday, February 7, 2008

What's the Difference Between Criminal and Civil Insider Trading Cases?

That's an easy question: with one you pay out money (and take an injunction prohibiting future violations) while the other sends you to jail.  But two insider trading cases this week raise the issue of why some go criminal while others remain only as civil enforcement actions.  The SEC announced on February 5, 2008, the filing of a settled insider trading complaint against a former director of Dow Jones, David Li, who tipped a close friend about a potential offer by News Corp. for the owner of the Wall Street Journal and other publications.  According to the Commission's Litigation Release (here):

On May 8, 2007, the Commission filed an emergency action in the United States District Court for the Southern District of New York against Kan King Wong ("K.K. Wong") and Charlotte Ka On Wong Leung ("Charlotte Wong"), alleging that the husband-wife couple traded Dow Jones securities based on inside information. Specifically, the Wongs purchased approximately $15 million worth of Dow Jones securities in their account at Merrill Lynch and, after the Offer became public, made approximately $8.1 million in trading profits. The court entered a Temporary Restraining Order freezing those assets and imposing other relief. See LR-20106 (May 8, 2007). Today the Commission filed an amended complaint alleging that Dow Jones board member David Li tipped his close friend, Michael Leung Kai Hung ("Michael Leung"), before the Offer's public disclosure, and Michael Leung, with the Wongs' assistance, traded Dow Jones stock in their Merrill Lynch account. The Commission further alleged that K.K. Wong bought 2,000 Dow Jones shares in his TD-Ameritrade account and made approximately $40,000 in profits. Charlotte Wong is Michael Leung's daughter, and K.K. Wong is his son-in-law.

Li is quite prominent in the Hong Kong business community, serving as the CEO of Bank of East Asia and as a member of Hong Kong's Legislative Counsel and Executive Committee.  This was not a small case as Mr. Li paid a civil penalty of $8.1 million and Michael Leung, the main trader, disgorged $8.1 million and paid a one-time penalty of the same amount, so that total from the case was over $24 million.  There is no indication that any criminal charges will be brought because of the trading, which involved the purchase of over 400,000 Dow Jones shares through a third party's account to hide the identity of the actual purchaser.  Of course, there is a chance that a sealed indictment was returned and prosecutors could be seeking to arrest either David Li or Michael Leung if they return to the United States, but it does not sound like that's the case given the civil settlement.

Meanwhile, on February 4, 2008, the U.S. Attorney's Office for the Southern District of New York announced that a jury convicted Hafiz Naseem of twenty-eight counts of insider trading and one count of conspiracy based on tipping a Pakistani banker, Ajaz Rahim, about impending deals that he learned about while working at J.P. Morgan and then Credit Suisse.  According to a press release (here):

Credit Suisse was engaged to advise either the target company or the acquiring entity in connection with business combination transactions involving the Issuers (the "Subject Transactions"). NASEEM, who was not assigned to work on any of the Subject Transactions, repeatedly searched Credit Suisse’s internal computer databases for confidential documents relating to the Subject Transactions, opened and read these documents, and passed the material non-public information concerning the Subject Transactions in these documents to RAHIM (the "Credit Suisse Inside Information"). NASEEM also was observed rummaging through papers on the desks of several analysts when the analysts were not present.

Naseem is not a U.S. citizen, and after the conviction the court revoked his bail and he was remanded into custody, most likely because he was a flight risk.  The total profits realized from the various tips was $7.9 million, the bulk of it from trading in TXU call options.   Under the Federal Sentencing Guidelines, Naseem is looking at a sentencing range of at least 78-97 months based only on the gain before any other enhancements that could easily take him up to a ten-year prison term.

While there are some differences between the two cases, there are many similarities, so it's not clear to me why one is criminal and the other only civil.  The loss amount is the roughly the same in each, and the violation of a fiduciary duty is clear for both tippers.  Each involved trading overseas, a particular problem that can threaten the integrity of the U.S. securities markets.  While Naseem was involved in a systematic course of conduct, Li was a director of a major corporation tipping a close friend.  The trading by the tippees was similar in the sense that each tried to hide his true identity, and substantial profits were made. 

Could it be that the decision was influenced by the fact that Li and Leung are prominent businessmen while Naseem is a lower-level investment bank employee who tipped a less-prominent Pakistani banker?  While it may be a consideration that Li and Leung might not be extraditable to the U.S., the U.S. Attorney's Office did indict Rahim despite the fact that it has not yet been able to get him into this country yet to face charges.  It may just have been the timing of the discovery, because Naseem was nabbed around the same time that the U.S. Attorney's Office was cracking down on others on Wall Street engaged in insider trading -- he was in the wrong place at the wrong time.  There may also be considerations about the strength of the government's evidence relating to Li and Leung that influenced the decision not to pursue criminal charges.  While the SEC complaint (here) presents the case in stark terms that makes it appear to be a straightforward insider trading case, the Commission does not have to test its evidence in court, and may only have a circumstantial case that the defendants were willing to settle so long as no criminal charges were filed.  But from the outside, at least, it is difficult to distinguish between them, and raises the question about what the appropriate criteria are for determining whether a criminal prosecution is used in addition to the civil enforcement mechanism.  That it could just be who wins or loses the criminal prosecution lottery is not very comforting. (ph) 

February 7, 2008 in Civil Enforcement, Insider Trading, Prosecutions | Permalink | Comments (2) | TrackBack (0)

Thursday, November 1, 2007

Sell on the Dip

There is an investment adage to "buy on the dip," meaning that when the stock market has one of its periodic one-day plunges that appears to be irrational, buy shares to take advantage of the discounted prices.  If you know bad news is coming, you can also position yourself to take advantage of it, and two SEC insider trading cases show once again that investors can profit from impending bad news just as easily as good news.  In one case, a former vice president at mortgage lender Countrywide Financial took advantage of information about a quarterly earnings shortfall by selling out his shares, sold short additional shares, and bought put options.  The stock dropped 11% on the announcement, netting profits and losses avoided of $35,547.93.  According to the SEC Litigation Release (here), in addition to the disgorgement the defendant paid a double-penalty, a steep price for a single set of trades.

In a second case, the Commission alleges that a Ukrainian national made bearish trades in IMS Health Inc. before the announcement that the company missed its quarterly earnings mark.  The SEC Litigation Release (here) states:

[J]ust hours before the close of the market on October 17, 2007, Dorozhko, while in possession of material nonpublic information regarding the impending announcement of negative earnings by IMS Health, purchased 300 Oct 25 out-of-the-money and 330 Oct 30 at-the-money put options on the common stock of IMS Health which would expire on October 20, 2007, just three days later. According to the Complaint, after the market closed on October 17, 2007, IMS Health reported third quarter earnings of $0.29 per share, which was 28% below analysts' consensus estimates of $0.40 earnings per share and 15% below the previous year's third quarter earnings of $0.34 per share. The Commission alleges that on October 18, 2007, IMS Health's stock price fell to a low of $21.20 per share or 28% from the previous day's closing price. On the same date, Dorozhko sold all of his IMS Health put options and realized proceeds of $328,000 and profits of $287,346 according to the Commission's Complaint.

Because of the overseas trading, the Commission sought and obtained a freeze order to keep the money in the United States while the Enforcement Division staff completes its investigation. (ph)

November 1, 2007 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Friday, October 26, 2007

Former CEO Charged With Insider Trading That Netted Over $185 Million

The former CEO of military armor supplier DHB Industries, now known as Point Blank Solutions, was arrested on a superseding indictment (available below) that charges him with insider trading involving proceeds of over $185 million from the sale of company stock in 2004.  Also named as a defendant is the the former chief operating officer of the company, who was indicted initially back in August 2006.  In addition to the insider trading, the indictment charges obstruction of justice, lying to company auditors and to the SEC, tax evasion, and accounting fraud involving undisclosed compensation and overstated inventory.  According to a Wall Street Journal story (here), the diversion of company resources for personal benefits included:

more than $350,000 in expenses related to Mr. Brooks horse business; more than $36,000 expenses related to his son's Bar Mitvah; $11,420 for acupuncture treatments for his family members; $7,900 for a face lift for his wife; $10,000 for his children's summer camp; $122,000 for the purchase of iPods and digital cameras to give as gifts at his daughter's Bat Mitzvah; and $101,500 for the purchase of an armored vehicle for Mr. Brooks and his family members' personal use.

The party for his daughter was broadcast as part of MTV's "My Sweet Sixteen" series, a favorite in my house.  The indictment also alleges that over $1 million of DHB money was used for family vacations, ranging from $100,000 for a trip to St. Johns to $3,200 on meals and merchandise at the Bellagio in Las Vegas.  In addition to the criminal charges, the SEC filed a civil enforcement complaint (here) in the U.S. District Court for the Southern District of Florida. (ph)

Download us_v_brooks_indictment_october_2007.pdf

October 26, 2007 in Fraud, Insider Trading, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 24, 2007

Former General Counsel Convicted of Insider Trading in His Company's Stock

The former general counsel for Amkor Technology, Inc. was convicted on securities fraud charges related to his trading in company stock (indictment here).  According to a press release (here) issued by the U.S.  Attorney's Office for the Eastern District of Pennsylvania:

Heron traded Amkor securities while in possession of material, non-public information including, among other things, the company’s financial condition, proposed mergers and/or acquisitions, and potential litigation exposure. He generally made his trades via the Internet using his office computer to access his online personal brokerage account. As a result of his illegal trades, Heron realized approximately $290,000 in gains and/or avoided losses.

The trades included buying put options on Amkor's stock as a bearish bet on the stock before the announcement of an earnings decline that caused a 32% drop in the share price.  It's not clear whether the former GC tried to hide his trading by using a fictitious name on the account, and he placed the trades from his office computer, so it was easy to trace.  This was not exactly the most sophisticated insider trading scheme even launched.  The SEC has a pending civil injunctive action (here) alleging the same violations. (ph)

October 24, 2007 in Insider Trading, Prosecutions, Verdict | Permalink | Comments (0) | TrackBack (0)

Thursday, October 18, 2007

Baseball and Inside Information

Nothing goes better with the great American pastime than passing a little inside information to your friend about a pending corporate transaction.  The SEC filed a settled civil enforcement action against a former director of of NSD Bancorp who disclosed a pending merger of the company with F.N.B. Corp. that was announced in October 2004.  The tippee bought 2,000 shares, and after the announcement NSD's stock price jumped 52%, allowing him to reap over $25,000 in profits.  According to the SEC Litigation Release (here), the director provided the information at or before the September 22 Pittsburgh Pirates game.  According to Baseball-Reference.Com (here), the Pirates lost to the Chicago Cubs 1-0 that evening -- the type of pitcher's duel that has a lot of down time to discuss a proposed buyout, no doubt.  The SEC alleges that "the morning of September 23, 2004, Pitterich, who had no prior history of trading in the securities of NSD Bancorp, purchased 1,000 shares of NSD Bancorp's stock on the basis of the material, nonpublic information provided to him by Lenzner. On October 1, 2004, Pitterich, on the basis of the same information, purchased an additional 1,000 shares."  The tippee disgorged his profits plus payed a one-time penalty, and the director/tipper also payed a one-time penalty.  Given that the Bucs haven't had a winning season since 1992, when Barry Bonds was on the team -- with a much smaller head -- there's got to be some reason to attend a late-season game. (ph)

October 18, 2007 in Civil Enforcement, Insider Trading, Securities, Settlement | Permalink | Comments (0) | TrackBack (0)

Friday, October 5, 2007

The Family Grapevine

The SEC filed a settled insider trading enforcement action accusing the defendant of trading on information about the impending takeover of Commercial Federal Corp.  According to the Commission's complaint (here), the defendant learned about the transaction from his brother, who received the information from his wife, an administrative assistant to Commercial Federal's CEO at the time who discussed her concerns about job losses from an acquisition of the bank.  The SEC asserts that by trading on the information, the defendant breached a fiduciary duty to his brother, based on the fact that they "had a history of sharing and maintaining confidences."  The defendant is a self-employed farmer/rancher, and the nature of the confidences the brothers shared is not described in the complaint. 

That's not the classic duty of trust and confidence described by the Supreme Court in Chiarella v. United States, 445 U.S. 222 (1980), which discussed legal fiduciaries like trustees and lawyers as examples of those with the duty of confidentiality.  But it does fit within the SEC's more expansive definition of such a duty in Rule 10b5-2(b)(3), which covers, inter alia, any person who "receives or obtains material nonpublic information from his or her spouse, parent, child, or sibling."  The broader definition of "duty of trust and confidence" in the SEC rule has never been tested in court, and won't be in this case because it is a settled matter.  But it's an open question whether a court would find the requisite duty based solely on the familial relationship and the trading of confidences.  The defendant settled the matter by disgorging over $39,000 in profits from his trading and a tippee's, and a civil penalty of $31.150 based on his profits. 

October 5, 2007 in Civil Enforcement, Insider Trading, Securities, Settlement | Permalink | Comments (0) | TrackBack (0)

Thursday, October 4, 2007

Report of Insider Trading at EADS

A preliminary investigation by the French financial regulator Autorité des marchés financiers (AMF) indicates that a number of senior executives at Franco-German aircraft manufacturer European Aeronautic Defense & Space Co. NV (EADS) sold shares before the announcement of problems with the company's largest development project ever, the A380.  The AMF report was discussed in the French newspaper Le Figaro and the trading allegedly occurred between November 2005 and March 2006, before the June 2006 announcement of technical problems with the superjumbo A380 and also the A350 aircraft.  The stock dropped over 25% on that announcement, and it is not clear how far in advance the information was known to 21 managers and executives who sold shares.  The AMF issued a statement (here) that

it submitted an interim memorandum to the prosecuting authorities in Paris in early September, in accordance with law; it obviously has no comment on the Le Figaro report; it insists that it has not completed its investigations and is unlikely to do so before the beginning of 2008; consequently, the AMF Board, which has sole authority to commence regulatory proceedings against persons suspected of infringing its General Regulation, has not given an opinion on the matters reported in the article and, at this stage, has decided solely to inform the criminal court thereof; at this stage of the procedure, which is still a standard inquiry, the persons concerned have not had the opportunity to exercise their right of defence.

Insider trading cases in the European Union are fairly uncommon, at least as compared to the United States.  It will be interesting to see how the investigation develops, especially when it involves a company with the political significance of EADS.  A story on CNN.com (here) discusses the report. (ph)

October 4, 2007 in Government Reports, Insider Trading, International | Permalink | Comments (0) | TrackBack (0)

Friday, September 28, 2007

An End-of-the-Year Insider Trading Clearance at the SEC

With the end of the fiscal year nearly upon us, the SEC seems to be clearing its docket of insider trading cases, announcing three new ones on the second to the last day of FY 2007.  Last year, the Commission was criticized for the decrease in enforcement actions, specifically insider trading cases, and it's unlikely that criticism will be leveled again with the increase in the number of such cases filed.  Note when the trading involved in the three cases occurred:

  • A father and son were accused of trading in the shares of Aspen Technology, Inc., Regeneration Technologies, Inc., and Triangle Pharmaceuticals, Inc. in 2001 and 2002 based on information the son obtained while working for Banc of America Securities and passed on to his father.  The father comes with quite a pedigree, having been "a founding member and Director of the Chicago Board of Options Exchange, Director of the American Stock Exchange, a Board member of the Securities Industry Automation Corporation, and a Director of the New York Institute of Finance."  The two defendants settled the matter by agreeing to be jointly and severally liable to disgorge profits of $204,476 plus prejudgment interest of $72,511.48.  The son will pay a one-time civil penalty, while the father agreed to a double penalty.  The SEC Litigation Release is here.
  • A former director and member of the audit committee at NBTY, Inc. is accused of tipping a friend about an impending announcement of an earnings shortfall in the third quarter of 2004.  Based on the information, the friend "sold his entire position of NBTY stock, sold the stock short, purchased put contracts, and sold call contracts through the custodial accounts of his three children," realizing $400,000 in gains and losses avoided.  The SEC complaint is here.
  • A tippee of a vice president of LendingTree, Inc., traded and tipped others before the announcement of a buyout of the company in May 2003.  The defendant realized profits of $14,078 himself, and his tippees made $74,516.  In settling the matter,the defendant agreed to disgorge his profits and pay a $88,594 penalty, equal to the total profits made through his and his tippees trading.  The SEC Litigation Release is here.

Just like the auto companies, the SEC needs to clear the lot for next year's models. (ph)

September 28, 2007 in Civil Enforcement, Insider Trading, Securities | Permalink | Comments (0) | TrackBack (0)

Thursday, September 27, 2007

Intimate Apparel Insider Trading

The SEC filed a settled insider trading case against a consultant for Frederick's of Hollywood for buying stock in Movie Star, Inc., before the announcement of a deal.  The two firms are leaders in the intimate apparel market -- I will abjure further comments -- and the merger was announced on December 19, 2006.  The defendant participated in the merger negotiations, and according to the SEC Litigation Release (here):

[B]etween September 14 and November 20, 2006, Keeney made over a dozen purchases totaling 157,000 Movie Star shares at an average cost basis of $0.97 per share, on the basis of material, nonpublic information concerning both the possible merger as well as the financial projections for Movie Star he had received in the course of the merger discussions. On December 19, 2006, both Movie Star and Frederick's publicly announced that the two companies had entered into a merger agreement. That same day, the price of Movie Star shares increased to close at $1.46. As a result, the complaint alleges, Keeney had imputed illicit profits of $77,540.50 from his unlawful trading.

The defendant agreed to disgorge profits (plus interest) of $81,210.96 and pay a one-time civil penalty. (ph)

September 27, 2007 in Civil Enforcement, Insider Trading, Securities | Permalink | Comments (0) | TrackBack (0)

Friday, September 7, 2007

Former Executive Settles SEC Insider Trading Case Over Sales Before Bad News

A former executive and co-founder of telecommunications company UTStarcom Inc. settled an SEC civil complaint alleging he and his wife sold shares of the company shortly before it planned to announce that it would not meet its earnings target for the quarter.  The SEC Litigation Release (here) states that

In late September 2005, UTStarcom failed to finalize a significant deal and the company was preparing to pre-announce to the market that it would not be able to meet its earnings guidance for the quarter. According to the Commission, Shey spoke to the UTStarcom executive by phone the weekend before the public announcement. Shortly after that conversation, Shey contacted his broker and began the process of liquidating his extensive UTStarcom stock holdings.

According to the complaint, just minutes after the market opened on Monday, October 3, Shey began selling his UTStarcom stock, and Shey's wife began selling UTStarcom stock in accounts of her family members. Shey sold more than 600,000 shares over the following days, making his final sale less than an hour before UTStarcom announced the revenue shortfall on October 6. Following that announcement, the company's stock price fell by more than 26 percent.

The defendant settled the SEC action by disgorging $420,226.60 representing the losses avoided by the sales, plus prejudgment interest of $31,909.96, and payment of a one-time civil money penalty. (ph)

September 7, 2007 in Civil Enforcement, Insider Trading, Securities, Settlement | Permalink | Comments (0) | TrackBack (0)

Thursday, September 6, 2007

Couple Plead Guilty to Insider Trading Charges

A former vice president at Morgan Stanley and her husband, a former analyst at a hedge fund, pleaded guilty to conspiracy and insider trading charges.  The defendants had been charged earlier this year with making over $600,000 on trading in three companies based on tips from the wife to the husband, who bought the securities through an account in the name of her mother.  The defendants agreed not to appeal a sentence between 30 and 36 months, which means they will each be serving a substantial term of imprisonment.  A story on CNN.com (here) discusses the guilty pleas. (ph)

September 6, 2007 in Insider Trading, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 5, 2007

SEC Insider Trading Investigation Goes International

The SEC's insider trading investigation of questionable options purchases in Placer Dome in October 2005 has taken an international turn as the Commission is seeking authority to interview witnesses in Canada, the U.K., and the Isle of Man.  On October 31, 2005, Barrick Gold Corp. made a hostile offer for Placer Dome, and as happens in so many deals, there was questionable trading in Placer Dome before the announcement.  Both companies are headquartered in Canada, and the SEC recently made a filing in federal court in New York seeking judicial authorization to require witnesses outside the United States to testify in its investigation.  The SEC filed an "unknown traders" suit on November 3, 2005, to freeze the $3 million proceeds of the Placer Dome options trading (see SEC Litigation Release here), and has identified the primary investor in Toronto.  The SEC is now trying to trace who might have been the source of the information. 

While the federal court has subpoena authority to compel witnesses to appear in the U.S., the Commission has to resort to the foreign courts and foreign securities regulators to obtain evidence abroad.  In its filing, the Commission cited an e-mail sent on October 23, 2005, by the Toronto investor who purchased the Placer Dome call options that states, "I hear from the Swiss lads that G is running at PDG. Act accordingly."  "G" is the ticker symbol for Barrick Bold, and "PDG" the symbol for Placer Dome.  There's more than a little smoke coming from that e-mail, which likely means a criminal investigation for insider trading.  A Globe and Mail story (here) discusses the SEC filing. (ph -- with thanks to YH)

September 5, 2007 in Insider Trading, International, Investigations | Permalink | Comments (0) | TrackBack (0)

Thursday, August 23, 2007

Nacchio Granted Bail Pending Appeal

In an uncommon decision, a panel of the Tenth Circuit issued an order (available below) granting former Qwest CEO Joseph Nacchio bail pending completion of his appeal of the nineteen insider trading convictions returned in April 2007.  On July 27, U.S. District Judge Edward Nottingham turned down Nacchio's request for bail pending appeal of the convictions and sentenced him to a six year prison term, although Nacchio had not yet reported to the Bureau of Prisons.  The Tenth Circuit maintained the same bail conditions that currently apply, and set the case for expedited hearing.  Under the accelerated schedule set by the appellate court, the defense brief is due October 9, the government answer on November 9, and any reply on November 20.  Unlike many appeals, in which the parties have upwards of six to nine months after sentencing to prepare and file their briefs, the hearing will be in mid-December, only five months after the sentencing.  While the panel's decision does not mean the conviction will be reversed, it does indicate that there is enough there to trigger a higher measure of scrutiny of the appellate issues, including Judge Nottingham's exclusion of classified information and his instructions on the materiality of the inside information.  (ph)

Download us_v_nacchio_10th_circuit_bail_order.pdf

August 23, 2007 in Insider Trading, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Friday, August 17, 2007

A Bank Stock Goes Up These Days?

The Wall Street Journal Deal Journal blog (here) raises a question about trading in First Charter stock before the announcement that it would be bought out by Fifth Third Bank.  While financial stocks have been pummeled the past few weeks as the meltdown in the subprime market is causing significant problems throughout the credit markets, especially for banks with mortgage operations, First Charter's stock increased 13% since the beginning of August.  The deal for First Charter is at $31 per share, more than a 50% premium to the previous closing price of $20.25 per share -- you don't think Fifth Third may have overpaid a little bit, do you?  Trading in First Charter shares was higher than usual in August, although that could be ascribed to the generally higher volume in the whole market due to the recent volatility, but then, some of the buying that increased the price could be due to information seeping into the market.  I was not able to locate a listing for call options on the company's shares, so buying the stock may have been the only way to bet on an increase in its price if someone had inside information about the buyout.  A premium that fat is awfully tempting to trade on, especially when so many stocks are down over the past few weeks, so the SEC will probably take a look. (ph)

August 17, 2007 in Insider Trading | Permalink | Comments (0) | TrackBack (0)

Saturday, August 4, 2007

SEC Identifies English Trader in Petco Insider Trading

The SEC filed an amended complaint (here) identifying a heretofore unknown purchaser of out-of-the-money call options in Petco in July 2006 before the company announced it was being taken private.  The SEC identified suspicious overseas trading in the weeks before the announcement, and filed an "unknown purchasers" complaint three days after the deal became public in order to freeze the proceeds from the transactions before they could leave the United States.  According to the Litigation Release (here):

The amended complaint alleges that Suterwalla entered into the transactions while aware of material nonpublic information regarding the pending acquisition of Petco, and that he took highly leveraged and speculative positions in the price of Petco's securities, which exposed him to the potential for millions of dollars in losses if Petco's price declined. The amended complaint further alleges that Suterwalla made all of his purchases within 17 days of Petco's acquisition announcement, that he made a number of his purchases the day before the announcement, and that his illicit profit from these transactions was more than $3 million.

No word yet on whether the newly identified defendant will show up to defend the SEC complaint and seek to regain his profits -- but I rather doubt it because there may well be a sealed indictment with his name floating around. (ph)

August 4, 2007 in Civil Enforcement, Insider Trading, Securities | Permalink | Comments (0) | TrackBack (0)