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SEC Charges Bristol-Myers Squibb Executive With Insider Trading

On August 2, 2012, the Securities and Exchanges Commission (“SEC”) charged an executive in the treasury department at Bristol-Myers Squibb with insider trading.  The Complaint  filed in the United States District Court of New Jersey alleges that Robert D. Ramnarine made more than $300,000 in illegal profits by misusing nonpublic information he obtained while helping Bristol-Myers Squibb evaluate whether to acquire three other pharmaceutical companies (Pharmasset Inc., Amylin Pharmaceuticals Inc., and ZymoGenetics Inc.).

The SEC alleged that Ramnarine used multiple personal brokerage accounts to illegally trade in stock options of these potential target companies. The SEC further alleged that, prior to his trading, Ramnarine conducted Internet research from his office computer to determine whether he could be detected by regulators -searching for such phrases as “can stock option be traced to purchaser” and “illegal insider trading options trace” and viewing such articles as “Ways to Avoid Insider Trading.”  “Ramnarine tried to educate himself about how the SEC investigates insider trading so he could avoid detection, but apparently he ignored countless successful SEC enforcement actions against similarly ill-motivated individuals who paid a heavy price for their illegal trading,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit.

The SEC is seeking a court order to freeze Ramnarine’s brokerage account assets.  The U.S. Attorney’s Office for the District of New Jersey announced that it is pursuing a parallel criminal action and the arrest of Ramnarine.…

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.…

The SEC v. Citigroup Appeal: SEC and Citigroup File Their Briefs Explaining Why Judge Rakoff’s Opinion Should Be Vacated

On Monday, May 14, 2012, both the SEC and the Citigroup Global Markets, Inc. filed their appellate briefs (available here and here) in the three consolidated appeals regarding Judge Jed Rakoff’s November 28, 2011 Opinion and Order rejecting the SEC’s proposed settlement with Citigroup. Both entities argued that Judge Rakoff committed error in his Opinion and Order, arguing, among other things, that it was contrary to well-established law to reject a consent settlement with a federal agency because it was not supported by admitted or judicially established facts. Both parties also argued that the settlement between them was fair, reasonable and adequate. A Brief in support of the district court’s position will be filed in August 2012.…

SEC Ups The Ante in Subpoena Dispute With Deloitte Touche Shanghai By Filing An Administrative Proceeding Against the Chinese Accounting Firm Threatening Its Ability to Appear Before the Commission

On May 9, 2012, the SEC announced that it has filed an Administrative Proceeding against Deloitte Touche Tohmatsu CPA Ltd. ("D&T Shanghai") for its refusal to provide the agency with audit work papers in connection with the Commission’s investigation of the accounting firm’s client for alleged accounting fraud. The Administrative Proceeding was filed while the Commission is in the midst of a subpoena enforcement action against the same accounting firm, that is scheduled to be heard in federal court in early June. The new matter is latest proceeding in the dispute over whether the SEC can compel the Chinese accounting firm to respond to its subpoena – the penalty which D&T Shanghai could face for its failure to comply is censure or being denied the ability to appear before the Commission.…

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."…

Former Morgan Stanley Executive Pleads Guilty to Conspiring to Evade Internal Accounting Controls Under the FCPA in China, While Morgan Stanley Avoids Prosecution Due to Internal Controls

On Wednesday, April 25, 2012, DOJ announced that Garth Peterson, a former managing director for Morgan Stanley’s real estate business in China, pled guilty in federal court in Brooklyn, New York for participating in a conspiracy to evade the internal accounting controls which the company was required to maintain under the FCPA. Because Morgan Stanley had a system of internal controls designed to assure that its employees were not bribing government officials, the Government did not prosecute the company. The SEC also announced that it brought and settled a case against Mr. Peterson.…

Wall Street Journal Article Details How SEC Inadvertently Revealed The Identity of A Whistleblower During An Investigation UPDATED On April 27, 2012

An article by Scott Patterson and Jenny Strasburg in the Wall Street Journal today revealed that, during an investigation of Pipeline Trading Systems LLC, an SEC attorney showed a witness a notebook which included handwritten notes from a whistleblower, and the witness recognized the handwriting and was able to tell his employers who the whistleblower was. The Whistleblower agreed to speak to the Journal and be identified, and detailed how he was treated both before and after he blew the whistle on Pipeline’s activities.  UPDATE: As discussed below, the SEC denies inadvertently disclosing the whistleblower’s identity.  …

SEC Files Case Against Chinese Company For Misrepresentations Regarding the Use of Its IPO Proceeds

On Monday, April 23, 2012, the SEC announced that it had filed a case against SinoTech Energy Limited, an oil field services company based in China, with intentionally misleading investors about the value of its assets and its use of $120 million in IPO proceeds. The SEC also charged CEO Guoqiang Xin and former CFO Boxun Zhang for their involvement in the fraud. The Complaint, filed in federal court in Louisiana, alleges that the company’s IPO registration statement misled investors about the acquisition and value of a key asset lateral hydraulic drilling units ("LHD Units") that are central to its business. In addition, the SEC charged Qingzeng Liu, SinoTech’s chairman and controlling shareholder, with misappropriating at least $40 million of SinoTech’s cash between June, 2011 and August 2011.…

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.…

SEC Files SOX Clawback Case Against Former CEO and CFO of Surgical Products Manufacturer

On Monday, April 2, 2012, the SEC announced that it has filed suit in federal court in Austin, Texas against Michael A. Baker, the former CEO of ArthroCare Corporation, and Michael Gluk, the former CFO, to recover bonus compensation and stock sale profits they received during an accounting fraud at the company. As the SEC pointed out in its press release, the two men "are not charged with personal misconduct, but they are still required under Section 304 of the Sarbanes-Oxley Act to reimburse ArthroCare for bonuses and stock profits that they received after the company filed fraudulent financial statements during 2006, 2007, and the first quarter of 2008."…

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).…

The SEC Settles a Case With an Executive at United Commercial Bank, But Gives Him Credit For His Substantial Assistance

On March 27, 2012, the SEC announced that it has sued John Cinderey, a former executive vice president at United Commercial Bank for aiding and abetting securities law violations relating to falsifying books and records and misleading the bank’s auditors. The Commission settled with Mr. Cinderey, who agreed to be permanently enjoined from violating provisions of the federal securities laws. The settlement reflected the credit given to Mr. Cinderey "for his substantial assistance in the investigation," along with his agreement to cooperate to assist in an ongoing related enforcement action.…

SEC Files Subpoena Enforcement Action Against Wells Fargo After the Company Cites The Commission’s Wells Notice As a Reason For Not Completing Its Subpoena Responses

On Friday, March 23, 2012, the SEC filed a subpoena enforcement action in federal court in California against Wells Fargo & Company. The Commission is investigating Wells Fargo’s sale of nearly $60 billion in residential mortgage-backed securities ("RMBS") to investors. The proceeding is unusual in that, while the Commission was still attempting to obtain information from Wells Fargo which it sought in investigative subpoenas, it sent Wells Fargo a "Wells Notice," stating that the Commission staff was "considering recommending" an enforcement action against the bank. When the SEC continued to press Wells Fargo for responses to the subpoenas, the company responded that it no longer thought a response was necessary while the Wells Process was ongoing. As a result, the Commission filed the subpoena enforcement action, arguing that the issuance of a Wells Notice did not forgive Wells Fargo from responding to the subpoenas.…

Citing The Example of an AXA Rosenberg Executive, the SEC Provides Regarding How Individuals May Receive Credit Under the SEC’s Cooperation Initiative

Normally, when the SEC posts a Litigation Release on its website, it announces a new case which it has filed, or settlement or judgment in a previously-announced case. One of the SEC’s Litigation Releases posted on March 19, 2012 was unique in that it did not announce any of those usual events, but instead was issued "to provide guidance regarding the circumstances under which individuals may receive credit as part of the SEC’s Cooperation Initiative." The announcement this week focused on the acts of a un-named (and un-charged) senior executive at AXA Rosenberg, an institutional money manager that specialized in quantitative investment strategies, who cooperated with the SEC, leading to charges regarding a material error in a computer code that was used to manage client assets.…

SEC Charges Investment Funds And Others For Violations Relating to the Purchase of Private Company Shares

On March 14, 2012, the SEC announced that it had filed a complaint in federal court in San Francisco and an Administrative Proceeding relating to private investment funds which were established to acquire the shares of Facebook and other Silicon Valley firms which were privately-held. The Commission’s charges included allegations that investors were misled and the funds and their managers pocketed undisclosed fees and commissions. According to the Commission, the fund managers raised more than $70 million from investors. The Commission also brought an Administrative Proceeding against an online service that matched buyers and sellers of pre-IPO stock, charging the entity with engaging in securities transactions without registering as a broker-dealer. The cases appear to be the first of their kind relating to the purchase of shares in the pre-IPO market.…

SEC v. Citigroup Global Markets: Second Circuit Stays District Court Proceedings For Duration of Appeal and Directs the Clerk to Appoint Counsel to Advocate Upholding the Judge Rakoff’s Ruling

This morning, the Second Circuit’s Motion Panel granted the SEC’s motion to stay the District Court proceedings in the litigation against Citigroup Global Markets, Inc. while the appellate court considers whether it should set aside Judge Rakoff’s decision refusing to approve the settlement between the parties. Specifically, the Court of Appeals found that the Commission and Citigroup "made a strong showing of likelihood of success" in either their appeals or petition for mandamus. The Court also stated that the SEC and Citigroup have shown "serious, perhaps irreparable, harm sufficient to justify grant of a stay." According to the Court, a stay would not substantially injure any other persons. The Court also found that the SEC’s "assessment of the importance of its settlement to the public interest" was entitled due deference. Because it granted the stay of the lower court proceedings, the Court also ruled that there was it was not necessary to expedite the appellate proceedings. Finally, the Court directed the Clerk of the Court "to appoint counsel, who will advocate for upholding the district court’s order."…

SEC Charges Three Mortgage Company Executives With A Scheme Related To A False Annual Report During Designed to Cover Up the Company’s Financial Crisis

On Tuesday, March 13, 2012, the SEC announced that it had filed claims against the CEO, CFO and Chief Accounting Officer of Thornburg Mortgage Inc., which used to be one of the nation’s largest mortgage companies, alleging that the three executives hid "the company’s deteriorating financial condition at the onset of the financial crisis" in the company’s Annual Report. According to the Commission, "[t]he plan backfired and the company lost 90 percent of its value in two weeks," and ultimately filed for bankruptcy. The case is the latest brought by the SEC relating to the market crisis.…

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.…

Bloomberg.com Article Questions SEC’s Claim of Record-Breaking Enforcement Statistics

A March 2, 2012 article by Joshua Gallu on Bloomberg.com states that the SEC’s claim that there has been an increase in the number of enforcement actions "isn’t supported by a detailed examination of the statistics." Mr. Gallu’s article states that 31% of actions filed in fiscal year 2011 were not new, but "were so-called follow-on administrative proceedings that institute penalties in cases that already had been brought." The article calls into question the SEC’s claim that its recent reorganization of the Division of Enforcement was yielding the 2011 record results.…

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.…

SEC v. Cuban: Court Rules That SEC Must Produce Non-Privileged Items From A Related Investigative File and Orders Both Parties to Produce Privilege Logs

In a February 10, 2012 Memorandum Opinion and Order, Chief Judge Sidney Fitzwater ruled on the motions to compel pending in the SEC’s lawsuit against Mark Cuban. Although these disputes in the insider trading case are largely procedural, they are significant in that the Court considered whether the SEC would be required to produce certain materials from its investigative files. Judge Fitzwater ruled that the SEC would be required to produce non-privileged documents from a related investigation into Mamma.com and documents relating to the relationship between the Mamma.com and Mark Cuban investigations. The Court denied Mr. Cuban’s request for documents relating to the involvement of another group of witnesses, as well as the request for the SEC’s notes and summaries of witness interviews. Finally, the Court ordered both sides to produce certain privilege logs.…

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