Insiders Who Tip Outsiders Liable for Insider Trading

Providing outsiders with inside information can result in significant problems for the insider.

As securities lawyers know, but the public does not, providing inside information to others, even if you do not buy or sell the stock yourself, creates liability for insider trading. In fact, the insider may be liable for the profits obtained by the outsider - even if he did not share in the profits.

Yesterday the SEC charged a former employee at a Silicon Valley-based semiconductor company for his role tipping nonpublic information used in connection with Raj Rajaratnam’s massive insider trading scheme.

The SEC alleges that Sam Miri, who worked in the communications division at Marvell Technology Group, tipped confidential information about the company’s financial performance to former Galleon Management portfolio manager Ali Far.  He used the nonpublic information provided by Miri to trade Marvell securities on behalf of hedge funds that he founded after leaving Galleon.  Far and Spherix Capital, who were among those earlier charged by the SEC in the Galleon matter, earned hundreds of thousands of dollars in illicit profits based on Miri’s tips.

In exchange for the illegal tips, Far arranged four quarterly payments to Miri totaling approximately $10,000. Miri, who lives in Palo Alto, Calif., has agreed to settle the SEC’s charges by paying more than $60,000 and being barred from serving as an officer or director of a public company.

According to the SEC’s complaint filed in federal court in Manhattan, Miri tipped Far in May 2008 with inside information about Marvell’s plans to announce a permanent chief financial officer after a string of interim chief financial officers.  With an earnings announcement scheduled for later that month, Miri also revealed confidential information about Marvell’s sales revenue and profitability as well as projections of future earnings potential.  In the days leading up to the announcement, Spherix Capital hedge funds purchased approximately 300,000 shares of Marvell common stock.  When the stock climbed more than 20 percent after Marvell announced its quarterly financial results and new CFO on May 29, Far’s hedge funds reaped approximately $680,000 in ill-gotten gains.

The SEC’s complaint charges Miri with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Miri agreed to pay $10,000 in disgorgement, $1,842.90 in prejudgment interest, and a $50,000 penalty.  Miri also agreed to be barred from serving as an officer or director of a public company for five years.  Without admitting or denying the charges, Miri agreed to be permanently enjoined from future violations of these provisions of the federal securities laws.  The settlement is subject to court approval.

For more information visit http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540396057

The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Who Are the Victims of Insider Trading?

DealBook.com has a very interesting article which raises this question, but not in the traditional sense. Those who believe that insider trading is a victimless crime certainly make an argument, but the guilty plea hearing last week in the SAC insider trading case brought the issue into focus. What made it interesting is that while federal statutes allow investors who bought or sold at the same time as the insider's trades to sue the inside trader, the Justice Department argued that those investors are not victims of the crime at all!

Which of course raises an interesting defense in the next investor insider trading suit.

For more detail, visit Determining the Victims of Insider Trading - NYTimes.com

The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of enforcement actions and insider trading cases. We represent investors, financial professionals and investment firms, nationwide. For more information call 212-509-6544 or send an email.

Court Questions SAC Capital Advisors Settlement.

In an interesting twist to the historic settlement of charges against Steven Cohen's hedge fund entities, Judge Richard Sullivan has not approved the settlement, saying he needs more information about the accord's fairness.

Citing the recent judicial "debate" about how closely to scrutinize regulatory settlements, U.S. District Judge Richard Sullivan directed SAC and the U.S. Department of Justice to address at a hearing on Wednesday morning what standard he should use to evaluate the civil forfeiture portion of the accord.

Separately, Sullivan's colleague, U.S. District Judge Laura Taylor Swain, scheduled a Friday hearing to review the criminal portion of the settlement in which SAC agreed to plead guilty to five fraud counts.

For more detail, visit U.S. judge won't rubber-stamp SAC insider trade decision 

SEC Loses Mark Cuban Suit

Years ago, in what we viewed as a far too convenient allegation, the SEC accused billionaire Mark Cuban of insider-trading. The allegations were odd - the SEC alleged that the CEO in question told Mr. Cuban, that he had confidential information to provide to him, and that Mr. Cuban agreed to keep it confidential. That allegation raises the question, can the CEO of a public company voluntarily provide material, non-public information to someone, and prevent that someone from trading? Is so, it is a great way to keep your largest shareholder from selling his stock - call him up and give him some inside information.

I have a number of blog posts on the case. All are collected in Mark Cuban SEC. All predicted a loss for the SEC, given the sheer lack of legal weight to the claims.

But that is not often enough. It is an unfortunate part of our society that the government often wins cases simply because the target of its ire does not have the ability to fight back. There are countless examples of small brokerge firms, investors and individual brokers who settle SEC, or FINRA cases simply because they cannot afford to fight, even though they are right.

I had the pleasure to represent a broker who did not back down from a fight with FINRA, who  refused to settle with them when he was right and FINRA was wrong. It was a time consuming and expensive fight, but we won, and FINRA lost.

It was therefore a pleasure to watch Mark Cuban fight back. He certainly has the financial ability, but he also had the nerve to do so. And, after only a few hours of deliberation, much of which was probably discussing football, so as to not embarass the SEC, the jury in federal district court in Dallas said that the Securities and Exchange Commission failed to prove the key elements of its case, including the claim that Cuban agreed to keep certain information confidential and not trade on it.

During an impromptu news conference outside the courthouse, Mark Cuban angrily denounced the SEC and its lead trial attorney, Jan Folena, saying that they lied about the evidence and targeted him because of his fame.

Mr, Cuban acknowledged that  defendants of lesser wealth could have been bullied.

''Hopefully people will start paying attention to how the SEC does business,'' Cuban said. ''I'm the luckiest guy in the world. I'm glad this happened to me. I'm glad I'm able to be the person who can afford to stand up to them.''

For more information - Jury says Cuban did not commit insider trading 

Previously Unknown Inside Traders in Heinz Settle SEC Charges

The Securities and Exchange Commission announced that two brothers in Brazil have agreed to pay nearly $5 million to settle charges that they were behind suspicious trading in call options for H.J. Heinz Company the day before the company publicly announced its acquisition.

The SEC filed an emergency enforcement action earlier this year to freeze assets in a Swiss-based trading account used to reap more than $1.8 million from trading in advance of the Heinz announcement.  The SEC’s immediate move the day after the announcement ensured the illicit profits could not be released out of the account while the investigation into the then-unknown traders continued.

In an amended complaint filed today in federal court in Manhattan, the SEC alleges that the order to purchase the Heinz options was placed by Rodrigo Terpins while he was vacationing at Walt Disney World in Orlando, and the trading was based on material non-public information that he received from his brother Michel Terpins.  The trades were made through an account belonging to a Cayman Islands-based entity named Alpine Swift that holds assets for one of their family members.  Rodrigo Terpins purchased nearly $90,000 in option positions in Heinz the day before the announcement, and those positions increased dramatically by nearly 2,000 percent the next day.

The Terpins brothers and Alpine Swift, which has been named as a relief defendant for the purposes of recovering ill-gotten gains, have agreed to disgorge the entire $1,809,857 in illegal profits made from trading Heinz options.  The Terpins brothers also will pay $3 million in penalties.  The settlement is subject to court approval.

For more detail, visit SEC.gov | Previously Unknown Insider Traders in Heinz Agree to $5 Million Settlement

Qualcomm Exec and Merrill Lynch Broker Charged with Insider Trading

The SEC has charged a former Qualcomm executive and his Merrill Lynch broker with insider trading in an elaborate scheme involving family members and off shore brokerage accounts.

The Securities and Exchange Commission said that former Qualcomm executive Jing Wang and his advisor, Gary Yin, made illegal trades in his company’s stock and that of a company purchased by Qualcomm. From 2006 to 2012, Yin and Wang both set up offshore entities to disguise their trades and hide some $271,644 in total profit, according to a complaint filed in U.S. District Court for the Southern District of California.

According to the SEC, Yin helped Wang set up “sham brokerage accounts,” which were registered in the British Virgin Islands under family members’ names to disguise ownership. The complaint also alleges that Yin created his own offshore account in the British Virgin Islands under the name of his mother-in-law.

The two funneled money into those accounts in order to make trades based on information such as the announcement of a Qualcomm revenue revision and the company’s 2011 acquisition of Atheros Communications, the SEC alleges.

His Financial Advisor With Insider Trading For more information, see SEC.gov | SEC Charges Former Qualcomm Executive and His Financial Advisor With Insider Trading Through Secret Offshore Accounts

Cell Phones Do Not Avoid Insider Trading Charges

While we have successfully defended professionals and investors in insider trading cases, those defenses are usually based on the fact that the client did not trade on such information. We do not win such cases because the investor hid his trading activity, but it is interesting to see what those trading on inside information do in order to avoid detection.

The most recent example, the SEC announced insider trading charges against a former systems administrator at Vermont-based Green Mountain Coffee Roasters who repeatedly obtained quarterly earnings data and traded in advance of its public release. According to the Commission, they traded out of the money options before earnings announcements and gained $7 million dollars in profits. The Commission alleges that they communicated with each other by voice and text messages using their wives' cellphones.

Pretty clever. No one would ever think of issuing a subpoena for my wife's cell phone in an insider trading investigation!

None of this works. First, let's keep in mind that the Commission and the exchanges have extensive records of trading activity. The regulators know, at a minimum, which brokerage firm had clients purchasing stock, or options, in the days, weeks, or even months leading up to an event. It is not difficult for the regulators to issue requests to the firms for the identity of the customer who made suspicious purchases.

From there the SEC Staff issues a document request to the customer, his brokerage firm, and ultimately his bank, his telephone company and any other entity, following the money. Ultimately the Staff takes the customer's testimony under oath,

At that time, the customer is faced with a choice - assist the investigation and testify, or refuse to testify and assert his rights under the Fifth Amendment. The latter choice is not always the right choice, and there are complications in doing so, but it is an option, and one that we sometimes recommend to our clients. Of course,there is a third choice - testify and lie - but that is not an option, as many targets of investigations have found, including Martha Stewart. She did a year for obstruction, and then settled the insider trading case.

The reality is that if you are going to trade on inside information, you are probably going to get caught, and if you are not trading on inside information, you don't have to go through hoops to hide your activity. In this case, this team of investors correctly predicted the company's stock price reaction to 12 of the past 13 quarterly earnings announcements. I once had a federal court judge tell me, during an insider trading trial, that "you don't pull a royal flush in 4 out of 5 poker hands." So too here.

But what I found interesting was the that the SEC alleges that as an information technology employee, McGinnis had access to shared folders on Green Mountain Coffee’s computer server where drafts of pending press releases and earnings announcements were stored.  He also had access to other employees’ e-mail accounts.  Both sources provided McGinnis with details about upcoming Green Mountain Coffee earnings announcements before they became public.

Plus, although the technology officer lives in Vermont, and his partner lives in Connecticut, according to the SEC, much of the insider trading in their online brokerage accounts occurred through McGinnis’ home Internet service.  They communicated frequently around earnings announcements, but infrequently otherwise.
But I am sure they thought they were being clever, according to the SEC, around trading times, they exchanged numerous phone calls and text messages  using cell phones belonging to their spouses.
It doesn't work. The SEC will figure it out eventually, and when they do, the penalty is THREE TIMES your profits. Not three times your net trading profits; three times the profit on the trades that the SEC says were made with inside information. They ignore the losers, by the way.

The solution? The obvious one is not to trade on inside information. More importantly, be careful when you trade on tips received from friends or colleagues, and document the trades that you do make. And if you are in the unfortunate position of being investigated for insider trading, retain an experienced securities attorney at the start of the investigation. Do not go it alone, the downside, which can include criminal charges, are simply too great.

SEC.gov | SEC Charges Former Green Mountain Coffee Employee And Friend In $7 Million Insider Trading Scheme

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The attorneys at Sallah Astarita & Cox include veteran securities litigators and former SEC Enforcement Attorneys. We have decades of experience in securities litigation matters, including the defense of insider trading investigations and enforcement actions. We represent investors, financial professionals and investment firms nationwide. For more information contact Mark Astarita at 212-509-6544 or at mja@sallahlaw.com

• More posts on insider trading at The Securities Law Blog, including SEC Loses Insider Trading Trial

SEC Charges Another SAC Capital Portfolio Manager

The Securities and Exchange Commission charged the tipper of confidential information to a S.A.C. Capital portfolio manager who has been charged with insider trading. The SEC amended its complaint against Richard Lee, who was charged last week, to additionally charge Sandeep Aggarwal, a sell-side analyst who tipped Lee in advance of a July 2009 public announcement about an Internet search engine partnership between Microsoft and Yahoo. 

The SEC alleges that Lee purchased large amounts of Yahoo stock in the S.A.C. Capital hedge fund that he managed as well as in his personal trading account on the basis of the inside information. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Aggarwal, who lives in India but recently returned to the U.S.

SEC.gov | SEC Charges Tipper of Confidential Information to S.A.C. Capital Portfolio Manager

SAC Capital Indicted - Why Bother?

Well the other shoe has dropped. The US Attorney announced the filing of criminal charges against Steven Cohen's firm, SAC Capital. The 41-page indictment that includes four counts of securities fraud and one count of wire fraud, prosecutors charged the fund and its units with carrying out a broad insider trading scheme between 1999 and 2010.

While the government apparently cannot prove that Mr. Cohen had knowledge of the trading, since only an administrative proceeding has been filed against him, the case seeks to attribute certain criminal acts of employees to the company itself, claiming that the fund “enabled and promoted” the illicit behavior.Corporations are "legal persons," capable of suing and being sued, and capable of committing crimes. Under the doctrine of respondeat superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. To be held liable for these actions, the government must establish that the corporate agent's ations (i) were within the scope of his duties and (ii) were intended,at least in part, to benefit the corporation.

But why bother? There is no jail in which to place a corporation, what is gained, other than headlines? There are a couple of reasons, but principally one - to put the entity out of business. While it is theoretically possible to hold corporate officers liable for the crimes committed by the entity, in reality that is extremely difficult. The goal here is undoubtedly to shut down SAC Capital, not to put it in jail.

The indictment will undoubtedly cause problems for the firm. Many investors do not like publicity, and in partular did not want to be associated with an entity that has been indicted. So, the firm loses investors, and thus capital. In addition, the indictment may trigger termination clauses in the firm's investment and financial agreements triggering termination of important financiing agreements.

There is also the financial penalties available in a criminal case. in the indictment, the government is seeking forfeiture of "all property, real and personal, which constitutes or is derived from proceeds traceable to the commission of those offenses" which are set forth in the indictment under Title 18, United States Code, Section 981(a) (1) (C), and Title 28, United States Code, Section 2461. Given the fact that the indictment alleges hundreds of millions of dollars in profits, the forfeiture provisions post a significant threat to SAC Capital's continued existence.

SAC Capital Is Indicted

SEC Files Admin Proceeding Against Steven A. Cohen

After months of speculation, the SEC filed administrative proceedings against Steve Cohen, the founder of SAC Capital Advisors, one of the largest and most well known hedge funds in the country.The fact that they filed an administrative proceeding rather than a civil case in court, indicates that they do not believe they can prove that there was fraud involved in their investigation, and that they do not believe he was engaged in insider trading. If they thought they could prove insider trading, they certainly would have been a civil, if not criminal case.

The charges involve allegations that he failed to supervise his employees and to prevent them from engaging in insider trading. Specifically, the Commission alleges that on two separate occasions in 2008, two portfolio managers who reported to Cohen obtained material nonpublic information about three different publicly traded companies. The Commission alleges that both portfolio managers provided information to Cohen indicating that they may have had access to inside information to support their trading. Based on that information, both portfolio managers engaged in unlawful insider trading. 

That is a typical SEC-style allegation. The allegations are full of innuendo and speculation, and perfectly innocent statements and text messages presented as "evidence" of wrongful conduct. The Commission does NOT allege that the managers told Cohen that it was inside information, it alleges that the information indicated that they may have had access to inside information. Those two statements are very different, but undoubtedly intended by the Staff to imply that Cohen knew it was inside information.

Clearly that is not the case, or this would not be an administrative proceeding. I think we can confidently conclude that the Commission does not have any information that Cohen knew of the use of any inside information.

This becomes clear when the Commission alleges that "Cohen received highly suspicious information that should have caused any reasonable hedge fund manager in Cohen’s position to take prompt action to determine whether employees under his supervision were engaged in unlawful conduct and to prevent violations of the federal securities laws."

Parsing the Commissions factual allegations there are far too many conclusions, such as "Cohen was aware" and implications to convince me that the Commission has a case. Clearly, if they had evidence that Mr. Cohen was in fact "aware" and allowed the trades to be placed he would be the subject of an insider trading case, not a failure to supervise case.

While this all makes for interesting reading and exploration to securities attorneys who are interested in insider trading cases, really is not fun and games. The Commission spent a significant amount of time investigating Mr. Cohen for insider trading, undoubtedly hoping to catch a career making big fish. Obviously there was no such case.

However, rather than closing the investigation, they file this administrative proceeding, which could have a significant impact on Mr. Cohen's ability to conduct business. Although the Commission did not ask for any specific relief in its complaint, in the press release they claim that they will be seeking financial penalties as well as a "supervisory and financial services industry bar."

We will continue to review the allegations, but at this point in time it appears that not only is the proceeding excessive, discussions of "financial services" bars are a flight of fantasy.

We will update as the case progresses.

Press Release:SEC Charges Steven A. Cohen with Failing to Supervise Portfolio Managers and Prevent Insider Trading

The Administrative Order Filing the Charges 

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SEC Charges Former Medical Device Company Employee for Illegally Tipping Brother with Quarterly Earnings Data

The SEC charged a former employee at a California-based medical device manufacturer with illegally tipping confidential financial data to her brother, who illegally traded in the company's stock and enabled his hedge fund clients to do the same.

The SEC alleges that the former employee, who worked in the finance department at Abaxis Inc., regularly provided material nonpublic information to her brother, whose insider trading in advance of the company's quarterly earnings announcements generated $144,910 in illicit profits. The brother, who was charged by the SEC last year, also passed confidential information to clients of his equity research firm Insight Research, including hedge fund managers.

To settle the SEC's charges, the former employee has agreed to pay $144,910 and be barred from serving as an officer or director of a public company for five years.

"When corporate insiders leak confidential information to a select few, the integrity of our markets is undermined," said Sanjay Wadhwa, Senior Associate Director of the SEC's New York Regional Office. "Abaxis entrusted [the former employee] with market-moving information, and she violated that trust to financially benefit her family."

The SEC's charges stem from its ongoing investigations into expert networks that have uncovered widespread insider trading at several hedge funds and other investment advisory firms. The investigations have so far resulted in enforcement actions against 40 entities or individuals who have reaped more than $430 million in alleged insider trading gains.

For more information, visit SEC Charges Former Medical Device Company Employee for Illegally Tipping Brother with Quarterly Earnings Data.

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Defending 10b5-1 Plans

We haven't seen much interest in Rule 10b5-1 plans recently. I suppose that a declining market during recent years tempered the desire to sell stock. If so, we should see a rise in the interest in such plans once again.

For those unfamiliar with these plans, a 10b5-1 plan is used by insiders in public company to sell securities of their company, without running afoul of insider trading laws. The plans are detailed, specific plans that are designed to let executives sell off shares at regular intervals, regardless of events inside the company at the time of the sales. Properly structured and executed, the plans provide a clear defense to an insider trading allegation.

Years ago the SEC began investigating the use of the plans, or rather the alleged abuse of the plans. According to the Commission, some executives were attempting to modify their plans as events at the company unfolded, causing potential violations of Rule 10b5-1, the SEC rule that permits the use of such plans. I wrote about the issue back then - 10b5-1 Plans Under Attack.

Along with a potential increase in the use of the plans, the Commission is once again looking into the use of the plans. According to the Harvard Law School Forum on Corporate Governance and Financial Regulation,  several recent Wall Street Journal articles suggest that some executives may have achieved above-market returns using the plans. These articles are reported to have drawn the interest of federal prosecutors and the SEC enforcement staff.

The problems that we have seen in the plans are in the execution of the plan itself, not in the creation of the plan. Defending executives in an SEC investigation over the use of a 10b5-1 plan  should not be a difficult endeavor. As noted in the article, although regulators and the media may scrutinize trades made under 10b5-1 plans even when above board and done according to best practices, a well-thought-out and implemented 10b5-1 plan may help a company and its executives avoid or ultimately refute accusations of impropriety.

More details are available at Rule 10b5-1 Plans: What You Need to Know

The attorneys associated with my firm include former SEC Senior Enforcement Attorneys and criminal prosecutors. In addition, I have been representing executive, financial professionals and firms in regulatory investigations and proceedings for over 25 years. If you have a question regarding an investigation, give me a call or send me an email - 212-509-6544 or astarita@beamlaw.com

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ICE to Acquire NYSE

 

Intercontinental Exchange said it plans to acquire NYSE Euronext in a stock and cash deal worth $8.2 billion. Both companies’ boards approved the plan to merge early Thursday.

Intercontinental Exchange, typically called ICE, operates regulated markets that trade in agricultural and energy commodities, credit derivatives, equities and equity derivatives, foreign exchange and interest rates. The firm also operates a wide range of clearing houses and has launched houses in the United States and Europe that clear credit-default swap transactions.

More information is available at Financial Planning.com ICE to Acquire NYSE for $8.2B

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Tipper-Tippee Liability Issues in Insider Trading

Insider trading cases can often become widespread, as the Commission moves through the chain of tips. In another case announced this week, the Securities and Exchange Commission charged an investment banker who was primarily based in Charlotte, N.C., and nine others involved in an insider trading ring that garnered more than $11 million in illicit profits trading on confidential information about impending mergers.

Keeping in mind that tippers are responsible for the trades of their tippees, this case takes on a whole new angle. And remember that the fines can include disgorgement of all profits (without giving effect to losses) and a two times penalty.

In the newest case the SEC alleges that John W. Femenia misused his position at Wells Fargo Securities to obtain material, nonpublic information about four separate merger transactions involving firm clients. Upon learning inside information about an impending deal, Femenia’s first call to set the insider trading ring in motion was typically to his longtime friend Shawn C. Hegedus, who worked as a registered broker. Femenia and Hegedus illegally tipped other friends who in turn tipped more friends or family members in a ring that spread across five states.

The SEC has obtained a court order freezing the assets of the illegal traders.

“Here you have an investment banker who clearly knew better that inside information can’t form the basis of trading decisions,” said William P. Hicks, Associate Director for Enforcement in the SEC’s Atlanta Regional Office. “Instead he basically started a phone tree of nonpublic information to enrich friends and others.”

More details are available at SEC Charges 10 in Insider Trading Ring Around Investment Banker's Illegal Tips on Impending Mergers; 2012-255; December 5, 2012.

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SEC Insider Trading Cases

As our readers and followers are aware, part of our practice is the representation of targets, defendants and potential defendants in insider trading investigations and complaints. Since 1985 when I was part of the defense team for the first civil prosecution of insider trading under the misappropriation theory, this specific area of the law has been part of my practice.

In SEC vs. Materia, the trial court found that Mr. Material, a financial printing firm employee, misappropriated confidential information from his employer and traded on that information. The Second Circuit adopted that reasoning, paving the way for the Supreme Court's adoption of the misappropriation theory of insider trading some 13 years later.

That case, and the entire concept of the misappropriation theory has always struck me as being wrong and intellectually dishonest. The "fraud" is not connected to the purchase or sale of a security, and the misappropriation theory simply reads the "in connection with" requirement of 10b-5 out of the statute.

However, I can't change the law, and today, with my new association with former SEC Senior Enforcement Attorneys Jim Sallah and Jeff Cox, we continue to represent those accused of insider trading across the country, and have expanded that area of our practices.

In doing so, we have  noticed an increase in insider trading cases brought by the Commission, which was recently confirmed by the SEC. In the recap of recent insider trading cases posted at the SEC's website, the Commission provides information regarding the 57 insider trading cases that it has brought over the last two calendar years.

Many of these cases have been discussed here on our blog, but the SEC provides information on their cases brought since 2009.  As we have noted in the past, the types of individuals accused of insider trading is interesting, and includes an Investment Bank Analyst, a Public Relations Executive, Former Major League Baseball Players, a Pharmaceutical Company Executive, Five Physicians, the Founder of Equity Research Firm, a Yahoo Executive and Ameriprise Manager, a Movie Producer and Ring of Relatives and Associates, an Expert Consulting Firm  and a host of stock brokers, traders and hedge fund managers.

The entire list is at the Commission's web site, and although they do not trumpet the cases they lost, such as the one they lost in Florida last year, where Jim Sallah successfully defended a doctor in an insider trading case, the list is an interesting look at those recent enforcement cases.

SEC List of Recent Insider Trading Cases

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SEC Charges Poker Players with Insider Trading

The SEC announced charges against a California man for with illegally tipping a hedge fund manager with inside information about Nvidia Corporation’s quarterly earnings that he learned from his friend who worked at the company.
The SEC alleges that Hyung Lim of Los Altos, Calif., received $15,000 and stock tips about a pending corporate acquisition for regularly providing a fellow poker player, Danny Kuo, with nonpublic details ahead of Nvidia’s quarterly earnings announcements.  Kuo, a hedge fund manager, illegally traded on the information and passed it on to multi-billion dollar hedge fund advisory firms Diamondback Capital Management LLC and Level Global Investors LP.
The SEC charged Kuo and the firms among others earlier this year as part of its widespread investigation into the trading activities of hedge funds. “These hedge fund traders were eager to find an edge in an otherwise competitive marketplace, and Lim provided them that edge for a price,” said Sanjay Wadhwa, Associate Director of the SEC’s New York Regional Office and Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Now one more participant in this sprawling scheme is being held accountable for his illegal transgressions.”
In a parallel action, the U.S. Attorney for the Southern District of New York today announced criminal charges against Lim. According to the SEC’s complaint filed in federal court in Manhattan, Kuo and the hedge funds made nearly $16 million trading in Nvidia securities based on Lim’s inside information.
More detail is available at the SEC web site in its press release.
We represent professionals and investors in insider trading investigations and proceedings, and have been doing so for decades. If you have a question regarding an insider trading investigation, or any SEC, FINRA or State investigation, send us an email at info@beamlaw.com

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SEC Charges Eight in Insider Trading Ring - Really? A "Ring"?

I don't think that a group of friends buying a stock based on a buddy's recommendation constitutes an insider trading "ring" but if what the SEC says they did is true, it is certainly insider trading and illegal.
The SEC charged eight individuals living in the Griffin, Ga., area for their involvement in an insider trading "ring" that generated more than $500,000 in illegal profits based on nonpublic information about an upcoming company merger.Four of the eight men agreed to settle the SEC’s charges and pay back all of their ill-gotten gains plus interest and penalties for a combined total of more than $175,000.
Here is the issue for the Commission - the original tipster in the case is the accountant for a member of the Board of Directors of a company that was going to be acquired. The accountant told his partner and three of his friends. One of those friends in turn is alleged to have tipped three of his friends.
The problem for the Commission, and the defense for the traders, is the concept of scienter, a guilty mind. The SEC has to prove that the defendants knew that they were trading on material, non-public information, in violation of a duty not to trade.
The farther we get from the original source of the information, the more difficult that burden becomes, and the friends of friends of the accountant to the Board member may very well have a defense to the charges. That is something that an experience securities attorney can assist with. Our firm's attorneys have the experience and knowledge necessary to make that evaluation and develop those defenses. If you have concerns regarding insider trading contact me at astarita at beamlaw dot com, or at 212-509-6544.
For more information on this alleged insider trading "ring" see the SEC's press release at SEC Charges Eight in Georgia-Based Insider Trading Ring  which also contains the various complaintes the SEC has filed against the alleged insider traders.dd
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More Insider Trading Follies - This Time Professional Baseball Players!

 The Securities and Exchange Commission announced a second round of charges in an insider trading case involving former professional baseball players and the former top executive at a California-based medical eye products company that was the subject of the illegal trading.

The SEC brought initial charges in the case last year, accusing former professional baseball player Doug DeCinces and three others of insider trading on confidential information ahead of an acquisition of Advanced Medical Optics Inc. DeCinces and his three tippees made more than $1.7 million in illegal profits, and they agreed to pay more than $3.3 million to settle the SEC’s charges.

Now the SEC is charging the source of those illegal tips about the impending transaction – DeCinces’s close friend and neighbor James V. Mazzo, who was the Chairman and CEO of Advanced Medical Optics. The SEC also is charging two others who traded on inside information that DeCinces tipped to them – DeCinces’ former Baltimore Orioles teammate Eddie Murray and another friend David L. Parker, who is a businessman living in Utah.

The SEC alleges that Murray made approximately $235,314 in illegal profits after Illinois-based Abbott Laboratories Inc. publicly announced its plan to purchase Advanced Medical Optics through a tender offer. Murray agreed to settle the SEC’s charges by paying $358,151. The SEC’s case continues against Parker and Mazzo, the latter of whom was directly involved in the tender offer and tipped the confidential information to DeCinces along the way.

“It is truly disappointing when role models, particularly those who have achieved so much in their professional careers, give in to the temptation of easy money,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit and Director of the Philadelphia Regional Office. “Mazzo had repeated personal contacts and communications with DeCinces, who promptly traded and tipped Murray, Parker and others that a deal involving Mazzo’s company was imminent. CEOs and other employees of public companies must resist the lure of sharing confidential information with their friends and always put the interests of their shareholders and company first.”

For more details see the SEC's Press Release New Charges in Insider Trading Case Include Former CEO and Professional Baseball Player

Insider Trading? Why Not? This time a CEO and His Own Company's Stock!

The SEC charged the chairman and CEO of a Santa Ana, Calif.-based computer storage device company with insider trading in a secondary offering of his stock shares with knowledge of confidential information that a major customer’s demand for one of its most profitable products was turning out to be less than expected.

The SEC alleges that Manouchehr Moshayedi sought to take advantage of a dramatically upward trend in the stock price of STEC Inc. by deciding to sell a significant portion of his stock holdings as well as shares owned by his brother, a company co-founder. The secondary offering was set to coincide with the release of the company’s financial results for the second quarter of 2009 and its revenue guidance for the third quarter. However, in the days leading up to the secondary offering, Moshayedi learned critical nonpublic information that was likely to have a detrimental impact on the stock price. Moshayedi did not call off the offering and abstain from selling his shares once he possessed the negative information unbeknownst to the investing public. Instead, he engaged in a fraudulent scheme to hide the truth through a secret side deal, and proceeded with the sale of 9 million shares from which he and his brother reaped gross proceeds of approximately $134 million each.

SEC Charges CEO With Insider Trading in Secondary Offering of Company Stock

More Insider Trading Follies - This Time, Physicians!

As I have said before, this is simply amazing.

We represent a fair number of investors who have been called to respond to SEC inquiries in connection with insider trading investigations. Maybe that is why I understand and appreciate the ability of the Commission to find those who trade on inside information and those who are not as familiar with such investigations do not have the same understanding.

To be sure, there is apparently a never ending series of investigations into insider trading, as well as lawsuits and settlements brought by the Commission. However, the SEC often casts a very wide net in its insider trading investigations, and many investors who are subpoenaed have valid reasons for their stock transactions, and did not trade while in possession of material non-public infomation.

Perhaps the SEC is not doing a very good job of educating investors that buying stock based on material non-public information is illegal. Whatever the reason, last week there was yet another SEC suit filed and settled.

This time is a a couple of doctors. In recent months we have had attorneys, a mutual fund manager, a Yahoo Executive, a Hollywood movie producer, and others (see our insider trading stories for the details).

According to the SEC press release and complaint, one doctor was the Chairman of the Board of American Physicians Capital, Inc. He knew that the Board was looking into selling the company, and later, that the firm was taking definitive steps to sell. The Commission alleged that this was material non-public information, and that the doctor shared that information with his friends and family. The Commission also alleges that they purchased $2.2 million of the company's stock based on that information. When the acquisition was announced, the shares closed up 28% over the previous day's close.

According to the Commission's press release, collectively, they made more than $623,000 in profits on their ACAP stock following the announcement.

Now for the real lesson in this matter. With $623,000 in profits, they agreed to pay the Commission over $1.9 MILLION dollars to settle the charges. Apparently this is something else that folks don't know - is a pretty settlement for an insider trading case - you give back your profits (without taking a credit for any losses) and then pay a penalty that is twice the amount of the profits. That is some pretty serious stuff, never mind that insider trading is also a crime.

Keep it in mind when you get that "hot tip" on a  stock. At the same time, even if you have a legitimate reason for purchasing the stock and the SEC comes calling, call an experienced securities attorney.

My number is 212-509-6544.

For more information see the press release. The insider trading complaint is also online. 

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