Articles Posted in Insider Trading

Day Trader Pleads Guilty to Securities Fraud Charges Related to Insider Trading Scam

Published on: May 25, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Day trader Daniel Corbin has pleaded guilty to a securities fraud charge accusing him of conspiring to make illegal trades based on confidential tips from the wife of an ex-Lehman Brothers salesman. He was one of five people indicted over this insider trading scam in 2008 and the last to plead guilty.

Corbin says that it was his partner, Jamil Bouchareb, who gained access to the material non-public information about Veritas DGC Inc. The information came from ex-Lehman Brothers salesman Matthew Devlin whose wife Nina Devlin worked at the public relations company Brunswick Group LLC at the time and had access to information about mergers and other deals. Devlin gave away that information without her consent.

Following the insider tip, Corbin and Bouchareb used their joint account to purchase 2,500 shares of the company on September 1, 2006. On September 5, 2006, Compagnie Generale de Geophysique SA purchased Veritas DGC. Corbin and Bouchareb made a $16,000 profit from the trade.

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped

Published on: April 19, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Our securities fraud attorneys had previously reported on the Securities and Exchange Commission’s case against Rajat Gupta, an ex-Goldman Sachs board member accused of passing on confidential information to Galleon Group Co-Founder Raj Rajaratnam about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs. Rajaratnam is accused of making $45 million from the scheme, which has been the target of what is being called one of the largest insider trading crackdowns involving a hedge fund. As part of its Galleon probe, the SEC has filed insider trading lawsuits against at least two dozen businesses and individuals.

The SEC is accusing Gupta of sharing with Rajaratnam details about the respective quarterly earnings of the investment bank and Proctor and Gamble, where Gupta also served as a director. Last month, agency filed its charges insider trading allegations against Gupta in administrative forum—a move that he is contesting.

On March 18, the ex-Goldman Sachs board member filed a lawsuit against the SEC denying the insider trading allegations and asking the federal court to block the SEC’s administrative claims and grant him a jury trial. Gupta contends that the SEC allegations took place at least a year and a half before the Dodd-Frank Wall Street Reform and Consumer Protection Act gave regulators permission to file such an action.

The Dodd-Frank Act has given the SEC the authority to use administrative proceedings to get monetary penalties from all individuals, regardless of whether or not they are connected to regulated entities. The SEC’s administrative trial in the Gupta case is scheduled for July 18. Gupta is the only defendant in the Galleon case that the SEC is pursuing administratively. He is a non-regulated person.

Related Web Resources:
Gupta Says U.S. Judge in New York Should Handle Suit to Block SEC’s Action, Bloomberg, April 11, 2011

Ex-Goldman director charged with insider trading, CBS News, March 1, 2011

Gupta v. Securities and Exchange Commission, Justia Docket Filings

U.S. v. Rajaratnam, SD New York 2011

More Blog Posts:
A Texan is Among Those Arrested in Insider Trading Crackdown Involving Apple Inc., Dell, and Advanced Micro Devices’ Confidential Data, Stockbroker Fraud Blog, December 16, 2010

3 Hedge Funds Raided by FBI in Insider Trading Case, Stockbroker Fraud Blog, November 23, 2010

Ex-Goldman Sachs Associate Will Serve Nearly Five Years in Prison for Insider Trading, Stockbroker Fraud Blog, January 10, 2008

Motion to Dismiss SEC Lawsuit Accusing Dallas Billionaire Brothers of $500,000 Securities Fraud Denied

Published on: April 1, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A district court has denied Charles and Samuel and Wyly’s motion to dismiss the SEC lawsuit accusing them of insider trading and running a 13-year securities fraud that generated $550 million in undisclosed gains. U.S. District Judge Shira Scheindlin says that the SEC did an adequate job of alleging the Texas billionaire brothers’ liability for fraud. She also said the federal agency adequately pled the concealment of sales in Michaels Stores Inc, Sterling Software, Scottish Annuity & Life Holdings Ltd., and Sterling Commerce Inc.

Last year, the SEC accused the brothers of setting up sham offshore trusts in the Cayman Islands and the Isle of Man to hide 13 years of stock sales, valued at over $750 million, in four companies that they founded.

The allegations were made following a six-year investigation. The SEC contends that with their improper gains, the brothers were able to acquire almost $100 million of real estate, purchase tens of millions of dollars in jewelry, art, and collectibles, and donate a great deal of money to charity. The agency also claims that the brothers either knew or were reckless if they didn’t know what their legal obligations were as public company owners directors and beneficial owners who owned more than 5%. Under the law, such persons have to report trading and holdings in their companies securities on Form 4 and Schedule 13D to the SEC. The SEC says that the brothers either knew or should have known that such disclosures are used by the investing public to get a sense of how a public company’s shareholders and insiders feel about prospects and financial conditions and that they depend on these disclosures to make investment decisions.

Judge Scheindlin also said that the SEC can pursue a claim accusing Dallas-based brothers of making $31.7 million from the alleged insider trading that they engaged in after they decided to sell Sterling Software in 1999.

Related Web Resources:
Billionaire Wyly Brothers Lose an Effort to Dismiss Insider-Trading Charges, NY Times, April 1, 2011
Wyly brothers lose bid to dismiss SEC fraud suit, Reuters, March 31, 2011
SEC Charges Corporate Insider Brothers With Fraud, SEC, July 29, 2010
Billionaire Brothers Samuel and Charles Wyly Charged With $550 Million Fraud, Daily Finance, July 30, 2010

More Blog Posts:
FBI Arrests Texas Leader of Pump-and-Dump Scheme, Stockbroker Fraud Blog, March 23, 2011
Dallas-Based Southwest Securities Settles for $500,000 FINRA Charges It Improperly Used Paid Consultants, Stockbroker Fraud Blog, March 17, 2011
Texas Securities Fraud: SEC Halts Alleged Ponzi Scheme in the Dallas-Fort Worth Area, Stockbroker Fraud Blog, March 2, 2011 Continue Reading ›

Guilty Plea for Financial Adviser Who Used UBS Tips in $1M Healthcare Insider Trading Scheme

Published on: January 28, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Registered investment adviser Alexei Koval has pleaded guilty to three counts of securities fraud and one count of conspiracy to commit securities fraud over his role in a $1 million insider trading scheme. Koval, a registered investment adviser, allegedly acted on tips about provided by his friend Igor Poteroba, an ex-UBS Securities LLC investment banker, about the healthcare industry.

Koval admitted to U.S. District Judge Paul Crotty that he and Poteroba engaged in securities fraud between 2005 and February 2009. The two of them used coded email messages to communicate. Poteroba also provided the tips to a third person, Alexander Vorobiev.

Koval, who used to work for Citigroup Asset Management (C.N), Northern Trust Bank (NTRS.O), and Legg Mason Inc. (LM.N) subsidiary Western Asset Management, says he paid money for the insider information about upcoming announcements regarding acquisitions or mergers involving Molecular Devices Corp, Guilford Pharmaceuticals Inc, Via Cell Inc, PharmaNet Development Group Inc, Indevus Pharmaceuticals Inc., and Millennium Pharmaceuticals Inc.

As part of Koval’s plea deal, he will forfeit at least $1,414,290 in illegal proceeds. He is facing fines in the millions of dollars and up to 65 years in prison. Koval is also facing civil securities fraud charges with the US Securities and Exchange Commission.

Illegal Insider Trading
The SEC describes this type of illegal trading usually refers to the selling or buying of a security that involves a breach of fiduciary trust or duty while in possession of nonpublic, material information about the security. It can involve the “tipping” of such information to others, actual trading by the person who was “tipped,” and trading by those who were in possession of the insider information.

Related Web Resources:
UBS Banker Poteroba’s Co-Defendant Koval Pleads Guilty, Business Week, January 7, 2011
Securities and Exchange Commission v. Igor Poteroba, Aleksey Koval, Alexander Vorobiev, and Relief Defendants Tatiana Vorobieva and Anjali Walter, Civil Action No. 10-civ-2667 (AKH), SEC, November 4, 2011
Insider Trading, SEC Continue Reading ›

44% of Insider Traders Convicted of Insider Trading in New York Manage to Get Out of Jail Before Even Serving Time

Published on: January 25, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Nearly Half of Those Committed Of Insider Trading Crimes Avoid Prison

According to Bloomberg News, nearly half of the defendants sentenced for insider trading crimes Manhattan federal court since 2003 have managed to avoid prison because they cooperated with prosecutors. That’s 19 out of the 43 people. The average defendant received a prison sentence of 18.4 months.

How are these insider traders managing to get such light sentences or getting away with not serving any time at all? Cooperating with prosecutors and pleading guilty to insider trading helps. So does suffering from an illness or having to take care of a sick family member.

US sentencing guidelines factor in how much of a profit an offender actually made, as well as the defendant’s scope of involvement in the crime. The US Sentencing Commission reports that in 7,617 fraud cases in fiscal 2009, the average sentence was 21.8 months. 94.9% of the cases ended with guilty pleas. 5.1% went to trial.

Sentences for Insider Traders Include Probation or Home Confinement

Bloomberg reports that per a review of government statements put out by the Manhattan U.S. Attorney’s Office since 2003, sentences for many of the insider traders convicted included home confinement or probation. Payment of restitution and fines also were usually required.

Insider traders who pleaded guilty generally received sentences of about 14.6 months—although if the case received a lot of media attention, lengthier prison sentences can result.

Of the four insider trading cases since 2003 that did go before a Manhattan jury, one case was thrown out right before sentencing. That said, persons convicted of insider trading generally are sentenced to longer prison terms (on average, the three defendants convicted in court of insider trading received 68 months sentences) than the ones received by those who pleaded guilty.

For example, Ex-Credit Suisse Group AG banker Hafiz Muhammad Zubair Naseem was sentenced to 10 years behind bars after a jury convicted him of leading a $7.8 million insider trading scam. Last December, ex-Jefferies Paragon Fund manager Joseph Contorinis was ordered to serve six years in prison for making over $7 million through insider trading.

Related Web Resources:
Insider Defendants Avoid Prison in 44% of N.Y. Cases, Bloomberg, January 19, 2011

Insider Trading, SEC

US Sentencing Commission

A Texan is Among Those Arrested in Insider Trading Crackdown Involving Apple Inc., Dell, and Advanced Micro Devices’ Confidential Data

Published on: December 16, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Federal prosecutors have arrested four people on insider trading charges related to the alleged revealing of secrets about Apple Inc.’s iPhone and other technology products to hedge funds looking for a trading advantage. Those arrested included Primary Global Research executive James Fleishman and “expert consultants” Mark Anthony Longoria from Texas, Walter Shimoon from California, and Manosha Karunatilaka of Massachusetts. All of the defendants are charged with wire fraud. The three “expert consultants” are also charged with conspiracy to commit securities fraud and wire fraud.

According to prosecutors, Fleishman arranged it so that Primary Global Research clients, such as hedge funds, could talk to the consultants, who gave them highly confidential information about Apple sales forecasts, new iPhone product features, and a secret project that was to become the iPod. Primary Gold Research allegedly paid consultants over $400,000 to engage in these phone conversations.

The case is an offshoot of an investigation into Galleon Funds founder Raj Rajaratnam and more than 20 others. Rajaratnam has pleaded not guilty to securities fraud. He claims that he only traded information to which the public also had access. Wiretaps were used to build the Galleon Funds case and this insider trading case.

According to the complaint, Flextronics International Limited business development senior director Shimoon illegally gave out insider information about the iPhone that had been given to Flextronics employees. The company and Apple had worked together on charger and camera components for both the iPod and iPhone. Shimoin was also caught on wiretaps saying he would obtain secrets about sales involving Research In Motion Ltd., which is the company that manufacturers Blackberries.

Texan Longoria is accused of giving out confidential information about Advanced Micro Devices, where he used to work as a supply chain manager. Another Primary Global Research consultant, ex- Dell global supply manager Daniel Devore, has pleaded guilty to conspiracy and wire fraud charges. Devore has said that Primary Gold Research paid him approximately $145,000 to provide insider information to company employees and clients about Dell.

Related Web Resources:
Insider trading case focuses on Apple’s secrets, Victoria Advocate/AP, December 16, 2010
Four more arrests in insider trading case involving Primary Global Research, SFGate, December 16, 2010
Texas Securities Fraud, Stockbroker Fraud Blog
Insider Trading, Stockbroker Fraud Blog Continue Reading ›

3 Hedge Funds Raided by FBI in Insider Trading Case

Published on: November 23, 2010 | by Shepherd Smith Edwards & Kantas, LLP

As part of its growing investigation into possible inside trading in the $1.7 trillion hedge fund industry, the FBI has raided hedge funds Diamondback Capital Management LLC, Level Global Investors LP, and Loch Capital Management LLC, which has a close link to a witness who pleaded guilty in the insider trading probe involving hedge fund Galleon Group. (That investigation is one that prosecutors are calling the largest U.S. hedge fund insider trading case to date. Of the 23 people charged in civil or criminal court, 14 people, including ex- hedge fund S2 Capital LLC manager Steven Fortuna have pleaded guilty). Level Global Investors and Diamondback Capital Management are owned by ex-managers of Steven Cohen’s SAC Capital Advisors, which is also a hedge fund. Per public filings, Diamondback manages about $4.71 billion while Level Global manages about $3.09 billion.

The raids come just as federal prosecutors are getting ready to reveal a number of insider trading cases against hedge fund traders, Wall Street bankers, and consultants. In addition to trying to determine whether investment bankers and other parties let traders know about pharmaceutical company buyouts (companies have allegedly earned tens of millions of dollars in illegal profits because of secret information about mergers), officials are also looking at “expert network” firms that garner big fees from hedge funds for matching them with industry specialists.

Meantime, shares of Goldman Sachs Group Inc. dropped by 3.4% after The Wall Street Journal reported that the Justice Department is looking into possible leaks by Goldman employees about mergers.

Related Web Resources:
FBI raids 3 hedge funds in insider trading case, Reuters/Yahoo, November 22, 2010
Feds turn up heat on Wall St., raid 3 hedge funds, AP/Google, November 23, 2010 Continue Reading ›

Insider Trading: Likely on the Rise and Harder to Detect

Published on: November 8, 2010 | by Shepherd Smith Edwards & Kantas, LLP

At a recent New York City Bar gathering, U.S. Attorney for the Southern District of New York Preet Bharara said that not only is insider trading “rampant” and likely “on the rise,” but also, that identifying, probing, and prosecuting this securities fraud crime has become much harder. Bharara’s speech was titled “The Future of White Collar Enforcement: A Prosecutor’s View.”

Bharara noted that because of the “sheer volume” and “complexity” of stock trading, it is harder to identify when a specific transaction occurs because inside information was obtained. Also, such illicit trades, he said, are “subject to plausible deniability.”

Bharara said that similar reasons make it easy for “pre-textual trading,” which is used to foil enforcement efforts, to occur. Also, the high volume of information that is now available through tweets, Web sites, blogs, and feeds can make it easier for someone to claim that trades were based on information obtained from “reports somewhere” rather than from an insider. Bharara pointed out that blurred lines have developed between white-collar crimes and street crimes and that the globalization of crime has made it easier for offenders to hide their illegal gains. Meantime, it has become easier for fugitives to seek refuge abroad.

Bharara vowed that probing and prosecuting insider trading remains a priority for the Federal Bureau of Investigation, the Department of Justice, and the US Securities and Exchange Commission. He said his office will use every legal tool of investigation at its disposal even if it means obtaining the court’s authority to use wiretaps.

The Future of White Collar Enforcement: A Prosecutor’s View, New York City Bar, October 20, 2010 (PDF)

Insider Trading, Stockbroker Fraud Blog

Dallas Billionaire Brothers Charged with Texas Securities Fraud

Published on: July 31, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Following a six-month probe, US Securities and Exchange Commission has charged two Dallas billionaires with Texas securities fraud. Brothers Charles and Samuel Wyly are accused of taking part in a financial fraud scheme that garnered them over $550 million in illicit gains.

The two men are accused of trading stock in four companies that they were the directors of and devising a securities scheme involving bogus subsidiaries and trusts in the Cayman Islands and the Isle of Man to cover up over $750 million of stock sales in Sterling Commerce Inc., Michaels Stores Inc, Scottish Annuity & Life Holdings Ltd., and Sterling Software Inc.

The SEC is also accusing the Wylys of making an insider trading gain of $31.7 million when they made a bet in Sterling Software, which they own, that was “massive and bullish” in 1999 after deciding to sell the company. Computer Associates bought the firm for $4 billion in stock in March 2000.

Also charged with Dallas securities fraud is the Wylys’ attorney Michael French and broker Louis Schaufele.The SEC claims that the Wylys and French either should have known or knew that they had disclosure obligations because of their roles as owners and directors of over 5% of company stock. The defendants are accused of issuing hundreds of misleading statements that allowed the brothers to conduct trades without detection, including large block trades involving of over 14 million shares.

The SEC contends the two brothers used the proceeds from the alleged Texas securities fraud to acquire real estate, art, and jewelry. They also are accused of using the money to donate to charitable causes.

The SEC wants to get back ill-gotten gains, impose civil fines, prevent the two men from serving as director or officer of a public company, and other remedies. An attorney for the brothers says that the securities charges are without merit.

“This is a situation in which wealthy investors may find that they can seek tax refunds by characterizing the loss on their investment as a “theft lost” rather than as a capital loss carry-forward. In total, our clients have received millions of dollars in refunds using this technique,” says Dallas Securities Lawyer William Shepherd.

Related Web Resources:
SEC Charges Corporate Insider Brothers With Fraud, SEC, July 29, 2010
SEC Charges Wyly Brothers With $550 Million Fraud, ABC News, July 29, 2010 Continue Reading ›

Ex-UBS AG Executive to Settle ARS Insider Trading Allegations Made by NY Attorney General Cuomo with $2.75 Million Penalty

Published on: February 25, 2010 | by Shepherd Smith Edwards & Kantas, LLP

As part of a deal to settle ARS insider trading allegations by New York Attorney General Attorney Cuomo, former UBS AG executive David Shulman has agreed to pay $2.75 million. Shulman is accused of finding out through nonpublic, material information that the investment bank’s student loan auction rate securities program was in trouble and that there was a possibility that future auctions involving the student ARS would fail. Yet he allegedly violated New York securities regulations when he proceeded to sell more ARS.

On December 13, 2007, two days after finding out about the ARS risks, Shulman, who supervised the ARS trading desk, sold $1.45 million in personal holdings of student loan ARS to the desk. He was suspended in July 2008.

Shulman has not denied or admitted to the document’s findings. However, as part of the agreement with Cuomo, he is subject to a retroactive 30-month suspension from working as a registered broker-dealer.

In the wake of the ARS market collapse in February 2008 that left so many investors, who were misled into believing their investments were as liquid as cash, with frozen securities, Cuomo remains committed to investigating broker-dealers’ auction-rate securities marketing and sales practices. Many of the investment firms that sold the ARS did so despite allegedly knowing that the securities were in danger of failing.

Since August 2008, Cuomo has gotten 12 financial service firms to agree to repurchase $61 billion of ARS at par. As part of their securities fraud settlements, the broker-dealers are paying $597.3 million in penalties.

Related Web Resources:
Former UBS Muni Chief Settles Probe for $2.75 Million, BusinessWeek, February 18, 2010
Attorney General Cuomo Announces $2.75 Million Insider Trading Settlement with Former UBS Top Executive David Shulman, Office of the NY Attorney General, February 18, 2010 Continue Reading ›