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Supreme Court affirms family insider trading conviction

On Tuesday, The United States Supreme Court unanimously affirmed an insider trading conviction by finding that inside information exchanged between relatives violates federal security laws. The case is Salman v. United States.

The decision provides new life to family insider trading prosecutions which had been stymied by the Second Circuit’s 2014 Newman decision. Newman held that, in order to convict a tipster of insider trading, the tipster had to have provided the information exchanged for some type of personal benefit.…

SEC forces Mickelson to return $1 million from insider trading

PGA golfer Phil Mickelson agreed to forfeit almost $1 million that the Securities and Exchange Commission (SEC) said was obtained through insider trading. Mickelson was named as a “relief defendant” in a criminal case, filed in the Southern District of New York against professional gambler William Walters and a former director of Dean Foods, Thomas Davis. Mickelson was not criminally charged but is subject to a SEC civil action requiring a claw back of profits he made from the improper trades.

According the SEC complaint, Walters received non-public, insider information from 2008 through 2012 about Dean Foods, the nation’s largest milk producer, from his long-time friend Davis, who was at the time chairman of Dean Foods. The inside information concerned plan to spin off subsidiary WhiteWave Foods Co.

In 2012, Mickelson received a telephone tip from Walters that Mickelson should purchase Dean Foods stock because the company was about to spin off its profitable subsidiary. At the time of the call, Mickelson owed Walters money over sports gambling bets. Walters is considered by many as the most successful sports bettor in the country.…

Supreme Court to review insider trading case

The Supreme Court has agreed to consider something that lies at the center of nearly every insider trading case: what prosecutors need to prove to win an insider trading conviction. This case aims to determine exactly what benefits corporate insiders need to receive for tips they disclose to traders to be illegal. It is expected to resolve a split in federal appeals courts and will review a July ruling regarding trades made by Bassam Salman from the California-based 9th U.S. Circuit Court of Appeals. Specifically, the court will review whether prosecutors had to prove that Salman’s brother-in-law, Maher Ara, a Citigroup investment banker, disclosed the information in exchange for a personal benefit.

Salman was convicted in 2014 and received a three-year sentence. On appeal, Salman relied upon the recent decision in the U.S. Court of Appeals for the 2nd Circuit, United States v. Newman (Newman), to challenge his conviction. The 9th Circuit rejected the 2nd Circuit’s reasoning in Newman and upheld the conviction.…

Supreme Court refuses to review insider trading case

The U.S. Supreme Court on Monday refused to hear the government’s appeal of an adverse court of appeals decision in an insider trading case which could make it harder to prosecute insider trading.

The decision threw out the 2012 convictions of hedge fund managers Todd Newman and Anthony Chiasson relating to tips about Dell and NVIDIA stock. The decision is seen as a blow to the government’s crackdown on insider trading in the three trillion dollar hedge fund industry. The decision could also jeopardize a number of other insider trading convictions secured by the U.S. Attorney’s Office for the Southern District of New York.…

FBI increases criminal fraud investigations by 65%, director reports

FBI Director James Comey shared the bureau’s enforcement trends and objectives at the New York City Bar Association’s Third Annual White Collar Crime Institute on May 19.

Comey recognized that although counter-terrorism is still a top priority for the agency, white-collar cases are receiving significant focus and resources. In the mortgage industry, agents are investigating foreclosure rescue companies preying on stressed homeowners and criminals who target senior citizens with the lure of reverse mortgages. In money laundering, enforcement targets are involved in a buying anonymous prepaid credit cards, using of “virtual currency” to transfer money and using smaller institutions to inject money into the banking system. In securities markets, the FBI also is targeting micro-cap market manipulation, insider trading and accounting fraud.

Comey emphasized in his remarks that the FBI has received additional resources from Congress, which allowed the agency to hire 2,000 people this year. In addition, he disclosed that more than 1,300 agents are working more than 10,000 white collar crime cases. These figures represent a 65% increase in the number of criminal fraud cases investigated by the FBI since 2008.…

SAC Capital Breaks Its Own Record, Settles Insider Trading Charges For $1.2 Billion

In March, an affiliate of SAC Capital agreed to a record high settlement of $616 million for charges of insider trading. As it turned out, the SEC was only getting started with the company and its owner, Steve Cohen. In July, both Cohen and SAC Capital were themselves indicted on insider trading.

Based on reports, SAC Capital agreed earlier this week to settle its charges for $1.2 billion, shattering the record again. In addition, the company agreed to plead guilty to each count in the indictment and close its investment advisory business. The indictment accused the company, among other things, of fostering a culture of insider trading, citing “institutional failure.”

As if setting a new record-high settlement wasn’t enough, the settlement terms give no shelter to Cohen, personally. The settlement states outright that it provides “no immunity from prosecution for any individual and does not restrict the government from charging any individual for any criminal offense.” By refusing to grant immunity to Cohen in this deal, the SEC confirmed that it will continue its civil investigation of the billionaire hedge fund manager and is even considering criminal charges in the future.

The settlement still needs to be approved by the federal court in New York. The hearing is scheduled for Friday. For more, Dealbook has a good analysis of the settlement.…

SEC Agrees to $5 Million Settlement With Two Brazilian Insider Traders

On Oct. 10, 2013, the Securities and Exchange Commission (SEC) announced that Rodrigo Terpins and his brother, Michel Terpins, have agreed to pay $5 million to settle charges that they were behind suspicious trading in call H.J. Heinz Company options one day before the company publicly announced its acquisition by Berkshire Hathaway and 3G Capital. In an amended complaint filed in federal court in Manhattan, the SEC alleges that Rodrigo Terpins, through a Caymans Islands-based entity named Alpine Swift, placed the order to purchase nearly $90,000 in option positions in Heinz based on material non-public information that he received from his brother Michel Terpins.

On Feb. 14, 2013, Heinz announced that Berkshire Hathaway and 3G Capital agreed to acquire Heinz in a deal valued at $28 billion, which resulted in a gain of approximately $1.8 million or an increase by nearly 2,000 percent of the original investment. The timing, size and profitability of the trades as well as the lack of a prior history of Heinz trading in the Alpine Swift account made the transactions highly suspicious in the wake of the Heinz announcement. Shortly thereafter, the SEC froze the assets in a Swiss-based trading account.…

SEC Charges Former VP of IR with Violation of Reg FD

On September 6, 2013, in its first Regulation FD enforcement action in almost two years, the SEC charged the former VP of IR for First Solar, Inc. ("First Solar") with violating Regulation FD. 

An SEC investigation determined that Lawrence Polizzotto violated Regulation FD when he indicated in telephone conversations with certain analysts that First Solar was not likely to receive a significant loan guarantee from the U.S. Department of Energy.  After becoming aware of the selective disclosure, First Solar issued an press release the next morning.

Mr. Polizzotto agreed to settle the SEC’s charges without admitting or denying the findings.  He agreed to pay $50,000 to settle the SEC’s charges and agreed to cease and desist from causing any violations and any future violations of Regulation FD and Section 13(a) of the Securities and Exchange Act.

The SEC determined that it would not bring an enforcement action against First Solar due to the its "extraordinary cooperation" with the investigation among other factors.  Prior to Mr. Polizzotto’s selective disclosure, First Solar cultivated an environment of compliance through the use of a disclosure committee that focused on compliance with Regulation FD.  In addition to immediately issuing a press release upon becoming aware of the selective disclosure, First Solar quickly reported the misconduct to the SEC.  The company also conducted additional Regulation FD training as a remedial measure.…

Feds Announce Indictment Against SAC Capital Advisors

Federal prosecutors and the F.B.I. today announced a criminal indictment against SAC Capital Advisors, the embattled hedge fund managed by billionaire Steven Cohen, based on an alleged broad conspiracy to commit securities fraud through insider trading. The indictment against the hedge fund itself — as opposed to its employees — could have disastrous consequences for the fund, including a potential exodus by its investors.

The indictment of SAC Capital is by far the largest crack yet in the company’s bow. The fund has already seen two of its employees charged with insider trading, and an SAC Capital affiliate, CR Intrinsic, recently agreed to pay over $600 million to settle SEC charges that it traded on nonpublic information about clinical pharmaceutical trials — the largest settlement in SEC history. Then, just last Friday, the SEC announced charges against Steven Cohen for failing to adequately supervise his employees and ignoring signs of suspicious trading activity.…

SEC Enforcement Activity: Feb. 11- 15

Second Circuit Hears Oral Argument on SEC-Citigroup Settlement

Last November, a federal judge in New York rejected a proposed settlement between the SEC and Citigroup in connection with charges of misleading investors at the beginning of the financial crisis. This week the Second Circuit Court of Appeals heard oral arguments in the case, which saw the SEC and Citigroup join forces against the District Court. Jim Hamilton has a good analysis of the proceedings here. …

SEC Enforcement Activity: Jan. 14-18

SEC Settles with Pond Securities In Market Manipulation Case

Four defendants – Andreas Badian, Jeffrey Graham, Pond Securities, and Ezra Birnbaum – agreed to settle charges of market manipulation, the SEC announced this week. In a complaint filed in April 2006, the SEC alleged that the defendants manipulated the stock of Sedona Corporation and violated record-keeping rules by falsely creating trade tickets. Without admitting or denying the allegations, the defendants agreed to disgorgement of profits and civil penalties of over $700,000. 

Read the SEC release here.…

Rajat Gupta Convicted of Conspiracy and Insider Trading

Rajat Gupta, the former Managing Director of McKinsey & Company and board member at Goldman Sachs and Procter & Gamble, was convicted on four of six counts by a federal jury in New York today for providing nonpublic material information to Raj Rajaratnam in 2008. Specifically, Mr. Gupta was convicted of conspiring to commit insider trading and three counts of insider trading (but was acquitted on two other counts of insider trading).…

Mark Cuban Continues His Vigorous Defense Against the SEC, Filing His Third Motion to Compel Production SEC Interview Notes and Summaries

As we have previously mentioned, the developments in the SEC’s insider trading case against Mark Cuban have been worth watching closely, particularly because Mr. Cuban is one of the rare individual defendants who has the financial ability to mount a defense in such litigation against the SEC, and his counsel has raised numerous interesting defenses and issues that could impact cases in the future, especially in the area of discovery He has filed several motions attempting to obtain copies of the notes and summaries of SEC personnel who conducted interviews during certain Commission investigations. On June 6, 2012, Mr. Cuban filed his third Motion to Compel in the case, requesting that the Court: (1) reconsider a prior ruling regarding the production of SEC interview notes and summaries taken in the course of investigating Mr. Cuban; (2) compel the production of SEC’s interview notes and summaries from interviews taken in the course of the Mamma.com investigation: and (3) compel the production of certain exhibits to the SEC Office of Inspector General Report into potential SEC misconduct during the investigation of Mr. Cuban.…

New Jersey Judge Sentences Lawyer Who Pled Guilty to a Record-Length Twelve Years For Insider Trading – Longer Than Raj Rajaratnam

On Monday, June 4, 2012, New Jersey Federal Judge Katharine Hayden sentenced Matthew Kluger (a former associate at several prominent law firms) to twelve years in prison for his role in a insider trading scheme. One of his co-conspirators, Garrett Bauer (a Wall Street trader), received a nine-year sentence. On Tuesday, June 5, 2012, Judge Hayden sentenced Kenneth Robinson, another co-conspirator (who cooperated and wore a wire to obtain evidence against Messrs. Kluger and Bauer) to 27 months in prison. As U.S. Attorney Paul Fishman pointed out, Mr. Kluger’s sentence "is the longest handed out for" insider trading. Remarkably, the prison term for Mr. Kluger (who pled guilty and apparently recovered less than $1 million in the scheme) eclipsed the eleven year sentence received by Raj Rajaratnam (who did not plead guilty and earned tens of millions of dollars in his scheme).…

New York Times Reports on SEC Database and Other Tactics Used To Help Detect Insider Trading

An article by Ben Protess and Azam Ahmed of the New York Times examined the new techniques by used by the SEC to catch those engaging in insider trading. As the article explained, the Commission "is taking its cue from criminal authorities, studying statistical formulas to trace connections, creating a powerful unit to cull tips and assign cases and even striking a deal with the Federal Bureau of Investigation to have agents embedded with the regulator." As discussed here, last month, Devin Leonard of BusinessWeek profiled Sanjay Wadhwa, a deputy chief of the SEC’s market abuse group, and took a close look at the insider trading investigation of Raj Rajaratnam (and the many leads that investigation has yielded). That article and the Times piece reflect what the SEC is doing to aggressively pursue insider trading defendants.…

All in the Family: A Pair of Insider Trading Cases

The SEC filed and settled two cases this week in which insiders tipped family members about events at publicly traded companies. In both cases, the insider and the tippees settled with the Commission, paying far more than any profit earned.

• On Tuesday, May 8, 2012, the SEC filed a case against Mohammed Mark Amin, a Hollywood movie producer, and his brother, cousin, and three other friends and business partners for insider trading in the shares of DuPont Fabros Technology Inc., a company in which Mr. Amin served on the board of directors. Those who traded earned approximately $618,000, but the six defendants settled by paying nearly $2 million.

• On Monday, May 7, 2012, the Commission filed a case against Angela Milliard, a former paralegal at Semitool Inc., a semiconductor company in Montana, and her father for trading on inside information about the 2009 acquisition of the company. The daughter and father (who earned $67,000) agreed to settle the SEC’s case by paying more than $175,000.…

DOJ Returns $44 Million From Former CEO Joseph Nacchio To Investors of Qwest

Prosecutors and the SEC work quite vigorously to recover ill-gotten gains from those who have committed securities fraud, with the ultimate goal of compensating investors. A conviction in a criminal case or judgment in civil case brought by the SEC may result in a large number, like the $53.8 million forfeiture judgment in the criminal case and the $92 million civil judgment against Raj Rajaratnam (discussed here), but that is only the first step. A May 3, 2012 Press Release from DOJ provides some insight into this process (and how long it may take) – following a 2007 conviction of Joseph Nacchio, the former CEO of Qwest Communications International Inc., based on events which took place between 1999 and 2002, DOJ announced that it "has returned approximately $44 million to victims of [that] securities fraud scheme."…

Judge Rakoff Issues Opinion in Civil Gupta Case Explaining Why He Will Not Compel the SEC to Produce Documents Relating to Settlement Negotiations

In a Memorandum Order entered on May 1, 2012, Judge Jed Rakoff formally denied a motion to compel by Rajat Gupta and Raj Rajaratnam, who were seeking an order that the SEC produce documents concerning settlement negotiations between the Commission and cooperating witnesses. In an April 11, 2012 telephone conference, Judge Rakoff tentatively ruled in the Commission’s favor, but allowed the parties to submit letter briefs on the issue. In the Memorandum Order, Judge Rakoff confirmed his tentative ruling, rejecting the defendants’ argument that the information from the negotiations could be used to prove bias, stating that "[t]he best evidence of bias in a cooperator’s testimony comes from the actual agreement he struck with the SEC, not from his lawyer’s attempt to get him a good deal."…

BusinessWeek Article Provides Detailed Look Into The Inner Workings of the SEC’s Investigation of Raj Rajaratnam

An April 19, 2012 article by Devin Leonard of BusinessWeek profiles Sanjay Wadhwa, currently a deputy chief of the SEC’s market abuse group. The article takes a close look at the insider trading investigation of Raj Rajaratnam (and the many leads that investigation has yielded). Although many bloggers point out situations where the SEC or prosecutors are criticized (this blog included, in entries such as here and here), the BusinessWeek article, entitled "The SEC: Outmanned, Outgunned and On a Roll," is instructive in highlighting how the SEC overcomes disadvantages and what it has done to improve its investigative efforts in recent years.…

Obama Signs STOCK Act

President Obama signed into law today the Stop Trading on Congressional Knowledge Act of 2012 or the STOCK Act. The STOCK Act bans insider trading by members of Congress and their staff as well as various other executive branch and judicial branch employees.

The STOCK Act also amends the Ethics in Government Act of 1978 to require a government-wide shift to electronic reporting and on-line availability of public financial disclosure information. In addition, members of Congress and covered governmental employees must report certain investment transactions within 45 days after a trade. Members of the public will be able to search this electronic database.

There are also various other elements of the STOCK Act related to ethics, including: 

  • required disclosure of personal mortgages for members of Congress and certain other high level governmental officials;
  • limitation on members of Congress and other high level governmental officials that they only may participate in IPOs that are available to the general public at large;
  • expanded pension forfeiture for members of Congress who commit acts of corruption while elected; and
  • required notification for members of Congress and other high level governmental officials with their ethics office when starting a job negotiation to leave the government.

The STOCK Act also requires the GAO and CRS to produce a report on the role of political intelligence firms in the financial markets.

While the STOCK Act passed Congress with bi-partisan support, some commentators believe the final product was watered-down because it omitted a provision that would have regulated …

Discovery Issues in the Parallel Rajat Gupta Cases – Judge Rakoff Directs SEC To Turn Over Witness Interview Materials From the Investigation to Prosecutors For Review Under Brady and Potential Disclosure to Defendant

On March 26, 2012, Judge Jed Rakoff issued an Opinion and Order in the two related cases against Rajat Gupta, granting in part a Motion to Compel and ordering the SEC to turn over to the U.S. Attorney’s Office materials relating to 44 witnesses (who were interviewed by the SEC and prosecutors jointly during the investigations of Mr. Gupta). He further ordered the prosecutors to review those memoranda and promptly turn over to the defense any material under Brady v. Maryland, 373 U.S. 83 (1963) (material exculpatory evidence to the defense – including evidence that could allow the defense to impeach the credibility of a prosecution witness). The ruling identifies another possible method (albeit a limited one) for a party seeking discovery from the SEC’s investigative file).…

SEC Separately Charges (and Settles With) Insurance Broker and Tax Manager With Insider Trading of the Shares of the Same Company

On Monday, March 5, 2012, the SEC announced that it had filed two separate cases, charging William Duncan, a California-based insurance broker, and John Williams, a Pennsylvania-based tax manager, with insider trading in the shares of Hi-Shear Technology Corporation ("Hi-Shear"). Both men obtained material confidential information regarding Hi-Shear’s proposed acquisition by Chemring Group PLC ("Chemring") and purchased Hi-Shear shares before the September 16, 2009 announcement of the transaction. Both men agreed to settle with the Commission.…

Gordon Gekko Is Working For the FBI

This week, the FBI released a Public Service Announcement starring two-time Academy Award-winning actor Michael Douglas warning viewers of the risks of securities fraud and encouraging individuals who have information regarding insider trading to contact their local FBI Office or submit a tip on line. The PSA begins with Mr. Douglas’s iconic "greed-is-good" speech from the 1987 film "Wall Street," which earned him an Oscar for the role of greedy corporate executive Gordon Gekko, and is followed with a clip of the present day Mr. Douglas warning investors that "if a deal looks too good to be true, it probably is," and providing information on how you can prevent securities fraud by contacting the Bureau. Released the same week that the FBI issued its latest Financial Crimes Report to the Public (discussed here), it seems a pretty clear sign that we have not heard the last of the insider trading cases. Stephanie Figueroa of PLI’s Securities Law Practice Center has a further look at the story here.…

Another Expert Network Insider Trading Case: John Kinnucan Is Charged By Prosecutors and the SEC Nearly 15 Months After He Refused To Cooperate and Wear A Wire

On February 17, 2012, both the U.S. Attorney for the Southern District of New York and the SEC announced that they had brought charges against John Kinnucan, the President of Broadband Research Corporation, for insider trading. The criminal charges allege that he tipped clients regarding three companies, while the SEC’s civil case, which also named Broadband as a defendant, alleged that that he provided clients with non-public, material inside information that he obtained from insiders at one of those companies. According to CNBC, Mr. Kinnucan had been approached in November 2010 by federal agents and asked to cooperate with their investigation by wearing a wire, but refused to do so.…