Insider Trading

Rajaratnam Brother Settles Insider Trading Charges Involving Hedge Fund Advisory Firm Galleon Management

Published on: October 23, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Rajarengan “Rengan” Rajaratnam, the brother of Raj Rajaratnam, has consented to pay over $840,000 to settle insider trading charges filed, against him by the U.S. Securities and Exchange Commission. Rengan, who has not admitted to or denied wrongding, also has agreed to an industry bar. A court must still approve the settlement.

Rengan was a portfolio manager at Galleon. He also co-founded Sedna Capital Management, which is another hedge fund advisory firm. Raj was convicted of insider trading in 2011.

It was in 2013 that the SEC filed charges against him for his involvement in the insider trading scam conducted by his brother Raj and Galleon Management.

Government Probe of Height Securities Into Possible Insider Trading Expands to Hedge Funds

Published on: September 10, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is looking into whether anyone from the government illegally leaked to Wall Street traders that there was going to be a change in health-care policy. In 2013, The Wall Street Journal reported that just before the government announced news that was favorable to companies in regards to Medicare payments, health-insurance stocks rose. Investigators want to know whether insider trading was involved.

The stock rise, linked to the announcement that the Centers for Medicare and Medicaid Services would reverse its direction on intended funding cuts for private insurance plans, may have been spurred by an email sent by a Height Securities, a Washington-based policy research firm. The alert appears to have been partially based on information that an ex-congressional health-care aide, who is now lobbyist, gave to the firm.

Sources tell The WSJ that the SEC now possesses evidence of over 20 phone calls, instant messages, and emails between investors and Height Securities analysts from the time the email alert was issued to when the market closed. The exchanges involved the hedge funds Citadel LLC, Visium Asset Management LLC, Viking Global Investors LP, and Point72 Asset Management LP, which was previously called SAC Capital Advisors.

Insider Trading Headlines: Principal of Wynnefield Capital Now On Trial, Ex-Vitamin Company Board Member Settles His Case, and Clinical Drug Trial Doctors Face Charges Related to New Cancer Drug

Published on: May 23, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Wynnefield Capital Inc. Principal On Trial in SEC Insider Trading Case

Nelson Obus, the principal of Wynnefield Capital Inc., is accused of engaging in insider trading to make his hedge fund $1.3 million. The U.S. Securities and Exchange Commission says that he confessed twice that he received a tip that SunSource Inc. was going to be put up for sale. One of the confessions was purportedly to the CEO of SunSource.

In 2001, SunSource announced it was going to be bought by Allied Capital Corp. It’s stock price then doubled. Obus, who had purchased stock in the company, made $1.3 million.

Insider Trading Roundup: Lawson Software Founders Pay $5.8M to Settle SEC Allegations, Three Sales Managers Face SEC Charges, and Kentucky Mayor Will Turn Over Illicit Profits

Published on: May 16, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Lawson Software Founders Resolve SEC Insider Trading Case

Richard Lawson, his brother William, and John Cerullo have agreed to pay $5.8 million to resolve U.S. Securities and Exchange Commission allegations that they engaged in insider trading prior to the merger between Lawson Software Inc. and two companies: Info Global Solutions and a Golden Gate Capital affiliate. The three men founded the software company.

According to the insider trading case, Richard tipped William and Cerullo that despite media and analyst reports the company was not the focus of a bidding war. This resulted in their selling of 1.8 million in company shares at prices that were inflated because of the speculation. They purportedly made illicit profits of $2 million when they sold the shares.

Jury Says Wyly Brothers From Texas Committed Fraud

Published on: May 14, 2014 | by Shepherd Smith Edwards & Kantas, LLP

A jury says that the wealthy Texas billionaire brothers Charles and Samuel Wyly committed fraud by setting up a secret scam using offshores trusts and making $550M in illegal trading profits. The Texas securities ruling of liability is based on claims brought by the U.S. Securities and Exchange Commission.

The civil trial occurred following years of probes and litigation by the SEC and others. While the Wylys (Charles died in a 2011 car crash) admitted to setting up trusts on the Isle of Man for tax benefits, asset protection, and estate planning, they have denied wrongdoing. The brothers maintained that they were under no obligation to disclose the trusts because legally they weren’t the beneficial owners of the securities in them. They said that they relied on an “army of lawyers” to make sure their activities were in compliance with the law.

The SEC said the Wylys set up the trusts to hide trading that took place between 1992 and 2004 in four companies. The brothers were the boards of these four entities.

FBI Probes Possible High-Speed Trading, Insider Trading Link

Published on: April 1, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Federal Bureau of Investigation is continuing to look at whether high-speed trading firms are insider trading when they avail of fast-moving market data to which other investors don’t have access. The agency is concern that the limited availability of material nonpublic information could be placing these traders at an advantage, including giving them access to extremely rapid data feeds. The probe is called the High-Speed Trading Initiative.

Since computer programs initiate high-speed trades, it can be harder to identify suspect activities and prove that they were done on purpose. According to The Wall Street Journal, FBI officials are looking for patterns to indicate that any trading activities took place that might have broken the law. The government would then have to prove that fraudulent intent was a factor.

Trading activities under examination include the placing of trades in groups and then cancelling them to make it appear as if market activity actually went on. This type of practice could potentially be considered market manipulation because others might buy trades because of these false orders. Also under scrutiny is the use of high-speed trade orders to hide that transactions are a result of an illegal tip.

Former Morgan Stanley Broker and Two Others Allegedly Ran $5.6M Insider Trading Scam, Swallowed The Information

Published on: March 19, 2014 | by Shepherd Smith Edwards & Kantas, LLP

In an alleged insider trading scam that could have been ripped out of the plot of a movie, prosecutors are accusing three men of engaging in methods of spycraft, including eating the evidence, as they ran an insider trading racket that netted about $5.6 million. The information they used was purportedly obtained from Simpson Thacher & Bartlett, LLP, which is the premier mergers-and-acquisitions law practice in New York. The firm is known for its work involving mergers and acquisitions and private equity.

Prosecutors say that Steven Metro, a managing clerk at the law firm, used his employer’s computer system to gather information about deals and other corporate developments involving clients. He then shared the information, which, according to The Wall Street Journal, included data about Tyco International Ltd.’s intentions to purchase Brink’s Home Security Holdings Inc., as well as the Office Dept. Inc. Office Max Inc. merger, with an unnamed mortgage broker during coffee shop and bar meetings. That person then allegedly gave the info to broker Vladimir Eydelman, who until recently, was with Morgan Stanley (MS) (and before that (Oppenheimer & Co. (OPY)) Edylman, 42, then traded on the data.

Metro and Eydelman were arrested this week and then released on $1 million bond. They face numerous criminal charges, including securities fraud. Meantime, the unnamed mortgage broker is working with prosecutors and is expected to consent to a plea deal.

JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam

Published on: January 25, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is barring J.P. Morgan Securities, LLC (JPM) vice president David Michael Gutman and ex-Meyers Associates LP Christopher John Tyndall from the securities industry for their alleged involvement in an insider trading scheme. According to the self-regulatory organization between March 2006 and October 2007, Gutman, who works in the firm’s conflicts office, improperly shared information with Tyndall that was non-public and material about at least 15 pending corporate merger and acquisition transactions

Tyndall then purportedly used the data to trade before at least six corporate announcements and recommended that customers and friends invest in the stock too. Tyndall and Gutman are longtime friends. The latter found out about the transactions from his job.

The inside information that Gutman provided Tyndall had to do with acquisitions involving Genesis HealthCare Corporation, American Power Conversion Corporation, First Data Corporation, Alliance Data Systems Corporation, SLM Corporation (Sallie Mae), and Cytyc Corporation. By settling, Tyndall and Gutman are not denying or admitting to the securities charges.

Ex-SAC Capital Manager Steinberg is Convicted of Securities Fraud & Insider Trading

Published on: December 23, 2013 | by Shepherd Smith Edwards & Kantas, LLP

A federal jury has convicted former SAC Capital portfolio manager Michael Steinberg for insider trading, conspiracy, and securities fraud. Prosecutors contend that he traded on confidential information that he received from another employee.

Steinberg is one of eight employees at the hedge fund’s Sigma Capital Management division charged with insider trading and the first to go to trial. Six of the others pleaded guilty, including SAC analyst Jon Horvath, who prosecutors said is the one that gave Steinberg the nonpublic information. Horvath, who turned witness for the prosecution, has admitted to exchanging illegal tips with people at different firms. He said that Steinberg pressured him to provide “proprietary” information about technology stocks.

Steinberg is accused of making a number of trades, including ones before Dell’s earnings report in August 2008 went out. He reportedly netted $1 million in trades from this after he started shorting the computer company’s stock following a tip that Dell’s gross margins would fall short of Wall Street’s expectations. Similar tips that Steinberg received about Nvidia reportedly netted the hedge fund over $400,000.

SAC Capital Advisors to Pay $1.2B Penalty, Pleads Guilty to Insider Trading Violations

Published on: November 4, 2013 | by Shepherd Smith Edwards & Kantas, LLP

SAC Capital Advisors is the first large Wall Street firm in a very long time to plead guilty to criminal behavior. The insider trading violations come with a $1.2 billion penalty. SAC is owned by billionaire Steve Cohen.

In addition to the fine and guilty plea, federal prosecutors in Manhattan will place the fund on probation for five years and it will no longer be allowed to manage outside investors’ money. Issuing its own statement, SAC said it is taking responsibility for the “handful” of individuals in the firm that pled guilty to insider trading and whose misconduct resulted in the fund’s liability. However, it pointed out, these men made up a “tiny fraction” of the firm and are not reflective of the 3,000 people that have worked there over the last two decades.

Cohen has not been criminally charged. However, the plea agreement is a stain on his reputation and what was once considered a stellar investment track record. The fund has posted average yearly returns of close to 30% since 1992. Now, SAC’s admission that a number of its employees traded stocks because of their access to secret information will always call his success into question.

It was just three months ago that a grand jury indicted SAC for allowing a “systematic” insider trading scam to take place for over a decade-from 1999 through 2010. Eight ex-SAC traders were charged with securities fraud. Six of them pleaded guilty and are cooperating with prosecutors. The other two are about to go on trial.

Earlier this year, SAC agreed to pay federal regulators $616 million in fines over two insider trading cases. The $602 million fine was imposed upon SAC unit Intrinsic Investors because over more than $275 million in profits and losses related to insider information about an Alzheimer’s drug trial. Stocks in pharmaceutical companies Wyeth Pharmaceuticals and Elan Corp. were traded. SAC unit Sigma Capital Management was ordered to pay a $14 million fine for insider trading involving Nvidia Corp. and Dell Inc. stocks. The two portfolio managers involved in these cases allegedly made profits and avoided losing trades in the tens of millions of dollars.

Still yet to be resolved is the civil action filed by the Securities and Exchange Commission against Cohen for this latest insider trading debacle. The regulator is accusing him of ignoring the misconduct that was taking place at SAC. The New York Times says that according to sources the SEC wants to bar Cohen from ever managing money again. (Right now, all of the fund’s investors have taken their money out of SAC-leaving about $9 billion under its management. The money primarily belongs to Cohen and his employees.)

Also, criminal authorities are continuing to investigate the billionaire and other SAC employees, and FBI agents are still looking at the hedge fund’s trading records and seeking more informants. The government has been looking into widescale insider trading allegations within the industry for some time now. Already, there have been over 70 convictions.

SAC Capital Pleads Guilty to Insider Trading, NY Times, March 15, 2013

SAC Hit With Record Insider Penalty, The Wall Street Journal, March 15, 2013

More Blog Posts:
SEC Charges SAC Capital Hedge Fund Adviser Stephen Cohen Faces With Failure to Stop Insider Trading, Institutional Investor Securities Blog, July 20, 2013
New Stream Capital LLC Hedge Fund Executives Face Criminal Securities Fraud Charges, Stockbroker Fraud Blog, February 28, 2013
Hedge Fund Manager Philip Falcone Consents to $18M Securities Fraud Settlement, Institutional Investor Securities Blog, May 16, 2013 Continue Reading ›