insider-trading

Dan Solin: A Trading Strategy That Really Works

by Dan Solin on June 1, 2011

Huffington Post…

The headline of a recent article in Barron’s caught my attention: “Fire Your Hedge Fund, Hire Your Congressman.” It reports on a study indicating that members of the House of Representatives outperform the average stock market investor by 6.8 percent a year, which is superior to the performance of the best hedge funds. Members of the Senate were even better traders. Their outperformance was an amazing 10.7 percent a year. The study looked at the period from 1985-2001. How did they do it? The authors concluded: “We find strong evidence that Members of the House have some type of non-public information which they use for personal gain.” Congress is not alone in figuring out that insider trading is profitable. Recent news reports include: The conviction of Raj Rajaratnam, co-founder of Galleon Group, for insider trading; Allegations by the SEC that Donald L. Johnson, a former managing director of The NASDAQ Stock Market, engaged in insider trading on confidential information that he allegedly stole while working in a market intelligence unit that communicates with companies in advance of market-moving public announcements. A guilty plea to insider trading by Barai Capital Management LP founder Samir Barai. In a related case, Sonny Nguyen, a former senior financial analyst for Nvidia pleaded guilty to conspiracy to commit securities and wire fraud. Senator Charles E. Grassley is examining 20 stock trades by mega hedge fund SAC Capital Advisors. The trades were made around the time of market moving events, like merger announcements. These insiders understand something your broker doesn’t. A combination of the efficient markets theory (EMT) and the wisdom of crowds make stock picking a zero sum game. EMT holds that attempts to “beat the markets” are futile because share prices incorporate all relevant information. Therefore, the current price of every stock is a fair price. There is no mispricing. The “wisdom of crowds” was coined in a book of that name by James Surowiecki. The premise is that the judgment of a diverse crowd is more accurate than one made by any single member of the group. As applied to stocks, it would mean that the pricing set by millions of stock traders looking at all publicly available information about a stock is better than your judgment or the judgment of you and your broker. Industry insiders accept EMT and the wisdom of crowds, but they are a persevering group, devoid of morality or ethics, in their quest for higher returns, more assets and more fees. They have gamed the system by creating inefficiencies in an otherwise efficient market. Trading on inside information achieves this goal. Unlike most investors, these industry pros don’t fight the overwhelming data that has persuaded them they can’t beat the markets. You and your broker and “market beating” advisers can learn a lot from their acumen. Don’t fight market forces. Join them and capture market returns with a globally diversified portfolio of low management fee index funds in an asset allocation suitable for you. Creating market inefficiencies is possible, but those convicted of insider trading (other than members of Congress!) will also be trading their Brioni suits for prison stripes. Is it worth it? The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

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Dan Solin: A Trading Strategy That Really Works

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Senator Investigates Suspicious Trading By Hedge Fund SAC Capital

by AP on May 22, 2011

Huffington Post…

— Republican Sen. Charles Grassley is investigating about 20 instances of suspicious trading by the hedge fund SAC Capital, a spokesman for the senator confirmed Saturday. Grassley, R-Iowa, requested the information about the trades from the Financial Industry Regulatory Authority (FINRA), an independent regulator of brokerage firms. SAC is a large Stamford, Conn.-based hedge fund founded by billionaire Steven Cohen. Grassley’s inquiry comes amid a massive government investigation into insider trading at hedge funds. Two former SAC portfolio managers have pleaded guilty to securities fraud. Last month, one of them, Donald Longueuil, admitted that he conspired from 2006 to 2010 to learn secrets about technology companies and trade on the information before it became public. He also confessed to destroying or throwing out a flash drive and hard drives after learning about the government’s investigation. No charges have been brought against SAC or Cohen. In April, Grassley, who has long criticized government regulation of Wall Street, requested information about the SAC trades from FINRA. News that the regulator has sent the information to Grassley was first reported by The Wall Street Journal and was confirmed by Grassley’s spokesman, Jill Kozeny. SAC representatives met May 10 with Grassley’s investigators. “We welcomed the opportunity to meet with the staff to educate them about the firm and our compliance efforts, and had an entirely appropriate, professional and cordial meeting,” said SAC spokesman Jonathan Gasthalter. “We will continue to cooperate in any way we can.” The investigation into SAC is part of a broad probe into insider trading practices. Billionaire hedge fund founder Raj Rajaratnam was convicted this month on five counts of conspiracy and nine counts of securities fraud in the biggest insider trading case in decades. Rajaratnam made a fortune enticing corporate tipsters to feed him illegal information that gave him an edge in blockbuster trades.

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Senator Investigates Suspicious Trading By Hedge Fund SAC Capital

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Traders Betting Big On Guilty Verdict In Huge Insider Trading Case

April 29, 2011

NEW YORK: Traders are betting there is a 90 percent chance that hedge fund manager Raj Rajaratnam will be found guilty of insider trading when the jury returns its verdict in the high-profile Wall Street trial. As of Friday, traders on Dublin-based predictive market Intrade were heavily favoring a guilty outcome on at least one of the charges facing the Galleon Group founder, charged in connection with a massive probe by U.S. prosecutors into alleged insider trading at hedge funds like Galleon. The jury in the seven-week-old trial completed a fifth day of deliberations on Friday without reaching a verdict in Wall Street’s biggest insider trading case in two decades. Intrade, which allows traders to bet on events ranging from presidential primaries to the winner of American Idol, launched speculative contracts on Rajaratnam’s fate on Wednesday. The odds have held steady at 90 percent since. The trading in Rajaratnam verdict contracts is relatively modest compared to more popular bets such as whether a Republican party candidate will win the presidential election in 2012. If Rajaratnam is found guilty on at least one of the 14 counts of securities fraud and conspiracy he faces, traders can settle the contracts they bought — currently at approximately $9 a share — for $10. If he is not found guilty on any charge, traders holding the contracts will receive nothing. Intrade allows traders to place bets on the outcome of high-profile legal proceedings like former baseball star Roger Clemens’s coming trial on charges he lied to Congress about steroid use, or the likelihood that the U.S. Supreme Court will rule on an appeal in healthcare reform challenges before 2014. In some cases the site has been spot-on, correctly predicting in May 2010 that President Barack Obama would tap then-U.S. Solicitor General Elena Kagan to fill a Supreme Court vacancy. However, it has not always been able to capture the likelihood of curve balls such as President George W. Bush’s pick of John Roberts for chief justice of the United States Supreme Court. Until about two hours before the nomination, U.S. 5th Circuit Court of Appeals Judge Edith Clement was the odds-on favorite in betting on TradeSports, now a part of Intrade. (Reporting by Jessica Dye; Editing by Howard Goller) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Henry Blodget: That Was a Classy Thing Lloyd Blankfein Did at the Rajaratnam Trial This Week

March 25, 2011

Goldman CEO Lloyd Blankfein testified at the Raj Rajaratnam insider trading trial the week. From most accounts, Blankfein’s testimony was devastating to Rajaratnam. Along with just about every other piece of evidence that has been presented thus far, it suggested that Rajaratnam is guilty as charged and will soon be spending some time in a federal prison. But the more surprising thing about Blankfein’s appearance was not what he said on the stand, but what he did when he stepped down. What did he do? He walked over to the defense table and shook Raj Rajaratnam’s hand. That was a very classy thing to do, and it says a lot about Blankfein as a person. Normally on Wall Street, when someone gets in trouble, everyone else on Wall Street rushes to distance themselves, lest they be considered a sympathizer — or, worse, a co-conspirator. In private, some folks stay supportive, but they rarely show that support in public. Instead, if forced to render public judgment, most Wall Street folks will either demur or express disgust and shock at the disgraceful conduct that has been discovered within their midst. That’s the easiest and most popular response, of course. And it’s also the least-risky response, as far as PR is concerned. (You don’t win PR points defending folks that the public has concluded are scumbags. And, for a variety of reasons, the public concludes that just about every Wall Street figure who gets in trouble is a scumbag. And some of them certainly are.). In any event, Lloyd Blankfein is the sitting Chief Executive Officer of the most powerful and important Wall Street firm in the world. He’s also the CEO of a firm that has come under intense scrutiny and criticism of its own in recent years. The “safe” thing for Blankfein to have done, therefore, would have been to behave the way many neutral witnesses at trials behave, which is to pretend that the defendant isn’t even in the room. Blankfein certainly could have behaved this way. He could have come in and out of his secret side door without ever acknowledging Rajaratnam. This wouldn’t have meant he was passing public judgment on Rajaratnam, and Rajaratnam certainly would have understood this. But, instead, in view of not only the courtroom and the jury but hundreds of reporters, Blankfein walked over to the defense table and shook Rajaratnam’s hand. Cynics will say that he did this because Rajaratnam is still a billionaire and one day, after he gets out of jail, will be a Goldman client again. I wasn’t there, and I certainly can’t see inside Blankfein’s head. But I think that’s b.s. I think Blankfein shook Rajaratnam’s hand because, at a human level, he sympathizes with what Rajaratnam is going through. And, at a human level, he thought that letting Rajaratnam know that would be a stand-up thing to do. And it was. Regardless of what these two men represent — and, symbolically, they represent a lot, especially these days — they’re still two men. They’re men who work in the same industry and certainly know each other by reputation, if not personally. They’re also men who have both been through rough times of late. One of these men has come through those rough times with his job, reputation, and career intact. The other is the defendant in a criminal trial that he is almost certain to lose. And in that situation, at a human level, the gracious thing to do is exactly what Blankfein did: Walk over and shake the other man’s hand. Read more on the Raj Trial at Business Insider .

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Jury Hears Details Of Intel Leak In Insider Trading Case

March 22, 2011

NEW YORK (By Jonathan Stempel and Grant McCool) – A former Intel Corp executive testified that he shared company secrets with his friend, hedge fund founder Raj Rajaratnam, the central figure in the biggest Wall Street insider trading trial in decades. Rajiv Goel, the second friend-turned-government-witness to take the witness stand at trial in Manhattan federal court, told the jury on Tuesday that he tipped off the Galleon Group founder because they were close friends and “Mr Rajaratnam helped me financially a few times.” Sri Lankan-born Rajaratnam, 53, is the most prominent defendant in the largest U.S. hedge fund insider trading case in history. Prosecutors have accused him of illegally making $45 million based on tips from corporate insiders. The one-time billionaire has denied wrongdoing, and said his trades were based on his own research and publicly available information. He faces up to 20 years in prison if convicted of securities fraud. Twenty-six people have been charged in the probe, and 19, including Goel, have pleaded guilty. He has yet to be sentenced. The trial began March 8 with testimony from an FBI agent who monitored phone taps and from star government witness Anil Kumar, a former McKinsey & Co executive who was another longtime friend of Rajaratnam and who said he had leaked client secrets. Goel, who worked at Intel from 2000 until his arrest along with Rajaratnam and Kumar in October 2009, testified that he was obligated under company policy to keep information confidential. “I violated my obligations,” Goel said under questioning by federal prosecutor Reed Brodsky. He also said: “I shared it (company information) with Mr. Rajaratnam.” Indian-born Goel, 52, is expected to testify for two or three days and he will be cross-examined by one of Rajaratnam’s defense lawyers. Goel admitted in his plea proceeding last year and at trial on Tuesday that he tipped Rajaratnam about a big wireless network transaction involving Clearwire Corp. Also on Tuesday, a current Intel executive testified that confidential details about Clearwire were leaked before the announcement of the deal. Prosecutors argued that Rajaratnam, who is on trial on charges of trading on illicit stock tips, bought 125,800 Clearwire shares based on inside information. They contend that his March 24, 2008, purchase came two days before news reports of a possible 4G WiMax venture between Clearwire and Sprint Nextel Corp, involving $1 billion of capital from Intel. The venture was announced on May 7, 2008. In his second day of testimony, Intel Vice President Sriram Viswanathan said Goel would have been dismissed immediately from his job for discussing details of a possible Sprint-Clearwire partnership, including capital commitments from Intel, Comcast Corp and Google Inc. Viswanathan also said Goel also would not have been authorized to disclose that Intel had held a board meeting on the matter. Those details were disclosed to the jury through phone taps of conversations between Rajaratnam and Goel. The case is U.S. v Rajaratnam et al, U.S. District Court, Southern District of New York, No. 09-01184. (Reporting by Jonathan Stempel and Grant McCool, editing by Matthew Lewis and Gerald E. McCormick) Copyright 2010 Thomson Reuters. Click for Restrictions .

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Video: U.S. Says Tapes Show Rajaratnam Tipped on Intel Deal

March 22, 2011

March 22 (Bloomberg) — The government claims recorded conversations between Rajiv Goel and Raj Rajaratnam show Rajaratnam received inside information about Intel Corp.’s planned investment in a wireless network company formed by Clearwire Corp. and Sprint Nextel Corp. ¶ The tapes were played yesterday for jurors at Rajaratnam’s insider trading trial in Manhattan. Bloomberg’s Jon Erlichman reports. (Source: Bloomberg)

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Video: Goldman’s Blankfein May Testify at Rajaratnam Trial

March 4, 2011

March 4 (Bloomberg) — Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein agreed to be a prosecution witness in Galleon Group LLC co-founder Raj Rajaratnam’s insider trading trial next week, said a person briefed on the matter. Bloomberg’s Jon Erlichman report. (Source: Bloomberg)

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Phil Trupp: The Tipster Calls: Do You Take the Money and Run?

February 15, 2011

Your friend who works at ABC Company tells you that the company is about to be acquired for more than it’s worth by XYZ Company, and that the stock price of ABC is likely to double. You trust your friend’s tip because he’s an executive at ABC and he or she is doubling down on the buyout. Question: As a retail investor, what would you do based on your friend’s tip? Do you call your broker and buy up as much ABC as you can afford? Or do you betray your friend, contact the Securities and Exchange Commission and volunteer to be a wire-wearing whistle blower hoping to bag a big, fat reward? Like many Wall Street operators — especially if you’re a hedge fund manager — you have been given inside information, which translates into money and power. But now you’re faced with an ethical dilemma. You read the newspapers and financial blogs and you are well aware of two things: insider trading is illegal, and yet it is an often-used business model with a long and inglorious history. What exactly is insider trading? Basically, it is the practice of buying or selling stock or other assets by corporate officers, other insiders or ordinary investors on the basis of information that is not public and is supposed to remain confidential. Insiders can buy or sell stock based on information they report to the Securities and Exchange Commission, thus making the public aware of the good, bad or perhaps the ugly data on a company’s balance sheet. Reporting this information to the SEC presumably gives the average investor a break, a level playing field upon which to make informed decisions. Fair enough. But if you are a major player or a hedge fund magnet, giving ordinary investors a break isn’t your concern. To pull down those hefty hedge fund fees you need to offer an edge, and that edge often amounts to inside knowledge played close to the chest and out of public view. So if the “whales” of Wall Street constantly are in search of inside tips, despite the legal and ethical pitfalls, why shouldn’t you cash in on your friend’s possibly profitable tip? The February 13 edition of the Washington Post business section features a story by David S. Hilzenrath and Jea Lynn Yang headlined “The federal dragnet on Wall Street’s inside game” which explores the insider trading business model and the government’s all-out push to put a stop to it. Insider trading has grown in recent years, the reporters conclude. But is this a growing epidemic enhanced by digital technology and unique ways of tracing cons? Or has technology merely exposed a practice that has been at work for generations? My experience brings me down on the side of the latter. Wall Street is not the Land of the Fair Deal. Indeed, insider trading is a means of taking advantage of ordinary investors and making a killing in the dark. For example, those insiders privy to special, non-public knowledge can — and often do — sell investors stock that is teetering on the edge of the cliff. The insiders sell you on the upside while betting the farm on the inevitable collapse. For example, hedge fund billionaire John Paulson recently worked with Goldman Sachs to produce a derivative made up of bad mortgage loans. Paulson bet against this so-called Abacus package, knowing in advance that it was built to crash, while Goldman sold it to clients as a bullish move. Paulson made out big-time, as did Goldman, while unsuspecting investors took the fall. The Abacus scam made headlines in the wake of populist outrage directed at the 2008 market meltdown. It was a sexy example of greed and insiders feeding at the public trough. The Street shrugged it off. It was by all accounts business as usual. It now appears that the Obama Administration is determined to crack down on such insider deals. The Department of Justice (DOJ) is focusing on a wide circle of expert network firms which feed inside information to financial management companies, matching various company insiders to stock traders. Wall Street argues there’s nothing wrong with this practice, that it is part of due diligence. The trouble with this argument is that the public isn’t connected to the process and is often enough victimized by it. DOJ is now trolling for insiders willing to wear wires to help build cases against billionaire hedge funds and those who feed them insider information. If there is honor among thieves, DOJ is proving the opposite is true. If stock and bond traders can’t cash in using legal practices, they can always snitch and pick up whistle blower awards granted by regulators that are often equal to, and at times exceed, the bonuses given to top financial executives. So where do you come down on my initial question? Do you call DOJ or do you take your insider tip and run straight to your broker? Critics of insider trading say the “integrity” of the market depends on your answer. Yet these same critics are challenged to find — let alone protect — the integrity they are so eager to preserve.

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Insider Trading Accusations Describe Network Of Hedge Fund Corruption

February 8, 2011

In the latest charges to be brought against Wall Street financiers, Federal authorities depict insider trading in dramatic detail. Two hedge fund managers — Samir Barai and Donald Longueuil — were arrested Tuesday morning on charges of insider trading, Bloomberg reports. Two others — portfolio manager Noah Freeman and analyst Jason Pflaum — pleaded guilty. The charges are the latest example of a Federal crackdown on insider trading that the Wall Street Journal detailed in November. In a pair of documents, the Securities and Exchange Commission and the Federal Bureau of Investigation describe an illegal exchange of information, which allegedly allowed hedge funds to reap $30 million in profits. According to the Federal complaints, employees at publicly traded technology companies sold secret information about those companies to workers at hedge funds, which then used that information to make big trades in the companies’ stock. The information was enormously profitable for the firms that received it, according to the court documents. Many of the allegations involve Winifred Jiau, who, the documents say, was employed by various technology companies and, at the same time, by Primary Global Research LLC, as a “private expert.” PGR would allegedly receive information from Jiau and then pass it on to clients, including Freeman and Barai. In May 2008, for instance, Jiau allegedly gave Freeman and Barai early information about the earnings of Marvell Technology Group. According to the SEC, Barai’s hedge fund subsequently reversed its short position on Marvell’s stock, and reaped close to $1 million in profits and avoided losses. In another case, Freeman earned about $9.7 million for his hedge fund, after learning secret information, the SEC says. The FBI documents add more color to the accusations. In November last year, after he read about the probe into insider trading, Barai allegedly wrote to Pflaum from his BlackBerry: – This scope is said to focus on the use of so-called expert network firms – Concern for years that some experts may be passing out confi [meaning, confidential] info about to go public cos [meaning, companies] to traders…. – [The Firm] was only one named!!!! – F*****ck The next morning he said, according to the FBI: – Didn’t sleep much either. – I dunno – I think we ok tho – I think U just go into office – Shred as much as u can He also said, according to the FBI: – Let’s not worry…. – No evidence we got exact info – So it doesn’t matter…. – Forget the past – No proof – So ur fine During a conversation between Freeman and Longueuil, which they recorded, they describe how to destroy electronic evidence, the FBI says. From the document: Freeman then remarked, “I don’t see how you get rid of this sh*t,” to which LONGUEUIL explained, “Oh, it’s easy. You take two pairs of pliers, and then you rip it open … and then, it’s just a piece of NAND. … So I just f*cking ripped it apart right there. … I had two external drives that had like wafer numbers on ‘em. F*ckin’ pulled the external drives apart. Destroyed the platter. … Put ‘em into four separate little baggies, and then at 2a.m. … 2a.m. on a Friday night, I put this stuff inside my black North Face [u/i] jacket, … and leave the apartment and I go on like a twenty block walk around the city … and try to find a, a garbage truck … and threw the sh*t in the back of like random garbage trucks, different garbage trucks.” Longueuil and Freeman have been accused of insider trading while they were employees of SAC Capital Advisors, the $12 billion hedge fund run by Steven A. Cohen. The company released a statement saying it is “outraged by the alleged actions of two former employees, which required active circumvention of our compliance policies and are egregious violations of our ethical standards.” Cohen, who is worth more than $6 billion , and who owns artist Damien Hirst’s embalmed tiger shark, “The Physical Impossibility of Death in the Mind of Someone Living,” has been sued repeatedly by his ex-wife, Patricia Cohen. In the latest version of the suit, she alleges that Cohen himself participated in insider trading. From the suit : Such privileged information was provided to Steven as part of his relationship with Mr. Newberg and as part of an effort to “take care of one another.” They sometimes referred to their group of Wharton friends as “the Wharton mafia.” READ the complaints below, from the SEC and the FBI: comp-pr2011-40 CNBC_Barai_et_al_Complaint

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John Taylor Skilling Dead: Jeff Skilling’s Son’s Body Found In Apartment

February 3, 2011

SANTA ANA, Calif. — A son of former Enron President Jeff Skilling has been found dead in his Southern California apartment. Santa Ana police Cpl. Anthony Bertagna says 20-year-old John Taylor Skilling was found dead Tuesday after he failed to meet friends for a dinner and they called police. Jeff Skilling’s attorney, Daniel Petrocelli, confirmed to CNBC that the young man was his client’s son. Petrocelli did not immediately return messages from The Associated Press. Bertagna said Thursday that bottles of medication were found near Skilling, who had been distraught over a breakup with his girlfriend. Authorities are awaiting a toxicology report to determine the cause of death. That could take four to six weeks. Skilling was studying at Chapman University in Orange. His father is serving a 24-year sentence in federal prison for fraud, insider trading and conspiracy.

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Video: Ex-Primary Global Consultant Jiau Granted $250,000 Bail

December 30, 2010

Dec. 30 (Bloomberg) — Former Primary Global Research LLC expert networking consultant Winifred Jiau, charged in New York as part of a Justice Department probe into insider trading, was granted $250,000 bail in federal court in San Francisco. Jiau, arrested Dec. 28 in Fremont, California, was accused of selling data on Nvidia Corp. and Marvell Technology Group Ltd., to portfolio managers at three unidentified hedge funds through Primary Global. Bloomberg’s Dominic Chu reports. (Source: Bloomberg)

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Video: U.S. Files Insider Charges, Says Hedge Funds Got Data

December 29, 2010

Dec. 29 (Bloomberg) — Federal prosecutors in Manhattan filed new charges as part of a national probe of insider trading, accusing consultant Winifred Jiau of California with selling inside information to two unidentified hedge funds. Jiau, arrested today in Fremont, was accused of selling data on Nvidia Corp. and Marvell Technology Group Ltd., maker of computer components, through a so-called expert networking firm, according to a filing today in Manhattan federal court. Bloomberg’s Su Keenan and Peter Cook report. (Source: Bloomberg)

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Video: Liu Says New York Looks to Attract Muni-Bond Investors

December 17, 2010

Dec. 17 (Bloomberg) — New York City Comptroller John Liu talks about the use of municiple bonds to support infrastructure projects. Liu, speaking with Mark Crumpton on Bloomberg Television’s “Bottom Line,” also discusses the U.S. insider trading investigation and confronting fraud from city contractors. (Source: Bloomberg)

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Video: Liu Says New York Looks to Attract Muni-Bond Investors

December 17, 2010

Dec. 17 (Bloomberg) — New York City Comptroller John Liu talks about the use of municiple bonds to support infrastructure projects. Liu, speaking with Mark Crumpton on Bloomberg Television’s “Bottom Line,” also discusses the U.S. insider trading investigation and confronting fraud from city contractors. (Source: Bloomberg)

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Video: Clark Says Hedge Funds May Be Next Target in Probe

December 17, 2010

Dec. 17 (Bloomberg) — Christopher Clark, a partner at Dewey & LeBoeuf LLP and a former assistant U.S. attorney, discusses the U.S. probe into insider trading and the recent arrests of technology company workers who allegedly sold secret information. Clark speaks with Betty Liu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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Video: Clark Says Hedge Funds May Be Next Target in Probe

December 17, 2010

Dec. 17 (Bloomberg) — Christopher Clark, a partner at Dewey & LeBoeuf LLP and a former assistant U.S. attorney, discusses the U.S. probe into insider trading and the recent arrests of technology company workers who allegedly sold secret information. Clark speaks with Betty Liu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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Video: Cohen Says Wiretaps May Strengthen Insider-Trading Cases

December 17, 2010

Dec. 17 (Bloomberg) — Joel Cohen, a partner at Gibson Dunn & Crutcher LLP, talks about the U.S. probe into insider trading and the evidence used for such cases. Three technology company workers and a man who worked at an expert-networking firm were arrested yesterday as part of the probe. Cohen speaks with Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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Video: Mallaby Says Insider Trading Like `Parking Infraction’

December 17, 2010

Dec. 16 (Bloomberg) — Sebastian Mallaby, author of “More Money Than God: Hedge Funds and the Making of a New Elite,” talks about today’s insider trading arrests. Three people who worked at technology firms including chipmaker Advanced Micro Devices Inc. were arrested along with an “expert networker” as federal prosecutors expanded a probe of insider trading to companies. Mallaby talks with Carol Massar and Matt Miller on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Video: Berenzweig Expects More Insider-Trading Indictments

December 16, 2010

Dec. 16 (Bloomberg) — Seth Berenzweig, managing partner at Berenzweig Leonard, talks about the U.S. investigation into insider trading and today’s arrests. Three people who worked at technology firms including chipmaker Advanced Micro Devices Inc. were arrested along with an “expert networker” as federal prosecutors expanded a probe of insider trading to companies. He speaks with Carol Massar and Matt Miller on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Video: Coffee Says Kinnucan Didn’t Do Anything Unlawful

November 24, 2010

Nov. 24 (Bloomberg) — John Coffee, a securities law professor at Columbia University, discusses the federal investigation into possible insider trading at hedge and mutual funds. John Kinnucan, who runs Broadband Research LLC, has been questioned by the FBI, putting a spotlight on money managers and their use of a burgeoning breed of firms selling research and access to industry experts. U.S. authorities in New York today arrested Don Ching Trang Chu, who worked for an expert-networking firm, on charges that he arranged for insiders at publicly traded companies to improperly provide information to hedge-fund clients. Coffee speaks with Julie Hyman on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Markets Close Lower after FBI’s Insider Trading Probe

November 22, 2010

Markets Close Lower after FBI’s Insider Trading Probe

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Markets Close Lower after FBI’s Insider Trading Probe

November 22, 2010

Markets Close Lower after FBI’s Insider Trading Probe

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Markets Close Lower after FBI’s Insider Trading Probe

November 22, 2010

Markets Close Lower after FBI’s Insider Trading Probe

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SEC Accuses Sam And Charles Wyly, Billionaire Dallas Investors, Of Insider Trading Yielding $550 MILLION

July 29, 2010

DALLAS — Famed Dallas billionaire investors Sam and Charles Wyly made $550 million in undisclosed profits through 13 years of insider trading in the shares of companies on whose boards they served, according to a Securities and Exchange Commission lawsuit filed Thursday. In a 78-page complaint filed in a Manhattan federal court in New York, the SEC said the Wylys held and traded tens of millions of securities in the companies and “defrauded the investing public” by misrepresenting the Wylys’ ownership and trading of those shares. “The apparatus of the fraud was an elaborate sham system of trusts and subsidiary companies located in the Isle of Man and the Cayman Islands … created by and at the direction of the Wylys,” the SEC complaint stated. Using this offshore system, the Wylys were able to sell stock worth more than $750 million in four public companies where they served as corporate directors. They also committed an insider trading violation at one of the companies that resulted in an unlawful gain of over $31.7 million, according to the complaint. The complaint lists the four companies as Michaels Stores Inc., Sterling Software Inc., Sterling Commerce Inc. and Scottish Annuity & Life Holdings Ltd., which is now known as Scottish Re Group Ltd. “The cloak of secrecy has been lifted from the complex web of foreign structures used by the Wylys to evade the securities laws,” Lorin L. Reisner, SEC deputy director of enforcement, said in a statement Thursday. “They used these structures to conceal hundreds of millions of dollars of gains in violation of the disclosure requirements for corporate insiders.” Also named as defendants in the lawsuit are the Wylys’ investment attorney, Michael C. French of Dallas, who was accused of covering the operation “with a false cloak of legality that was essential both to its concealment and its execution. Another defendant was the Wylys’ stockbroker, Louis J. Schaufele III of Dallas, who was accused of using his position to conceal and misrepresent the Wylys’ control over the securities and making insider trades himself. The Wylys’ defense attorney, William A. Brewer III of Dallas, called the charges “without merit” and said the Wylys “intend to vigorously defend themselves – and expect to be fully vindicated.” “At worst, the claims appear to represent an after-the-fact justification for a misguided six-year investigation,” Brewer said in a statement issued by his law firm. Attorneys for French and Schaufele had no comment Thursday. In March, Forbes magazine estimated Sam Wyly’s net worth at $1 billion. He has given generously to Republican causes and candidates, including the Swift Boat campaign that helped re-elect President George W. Bush in 2004 by tarring his Democratic opponent, Sen. John Kerry.

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Iris Mack: Why Can’t the SEC Crack Financial Cases? The Peace Corps?

July 1, 2010

Following up on my article Why Does the SEC Have Such an Abysmal Record Solving Financial Cases? one of my readers emailed the following: I was reading your blog comments on the SEC and it reminded me of something that I have always found outrageous – like in the Peter Sellers movie “A Shot in the Dark” where he plays the part of the incompetent police Inspector Clouseau, and the criminal perpetrator wants to keep him in charge of the case because his incompetence lessens the chance of finding the truth. In a similar vein, I think, is the fact that David Kotz , the Inspector General of the SEC, was recruited from the PEACE CORPS (he may be honest and mean well, but what experience in uncovering sophisticated financial crimes would he have gained there? It’s like someone doesn’t really want a competent investigator in charge.) Kotz did uncover some sort of “evidence” of insider trading by SEC lawyers but nothing has come of it!!! Well, I learn something new everyday — oftentimes thanks to my readers. Who knew that working as a lawyer for the Peace Corps was a stepping-stone to becoming the Inspector General of the Securities and Exchange Commission? Don’t get me wrong here. I am not trying to disparage the Peace Corps. From what I understand, it does a lot of good around the world. However, I have never known it to be a place to train lawyers how to solve complex financial cases at the SEC. No wonder the SEC is having a hard time solving financial crimes involving complex derivatives, mathematical finance, financial engineering, stochastic calculus, complex structured transactions, quantitative analysis, insider trading, SPVs, SIVs, flash trading, proprietary trading, statistical analysis, mathematical modeling, numerical analysis, hedge funds, Ponzi schemes, Bernie Madoff, AIG, Goldman Sachs, etc., etc., etc.! This is really scary! Folks, we are in serious trouble!

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Kumar Will Pay $2.8 Million to Settle SEC Charges in Galleon Insider Case

May 17, 2010

By David Glovin May 17 (Bloomberg) — Former McKinsey & Co. director Anil Kumar agreed to pay almost $2.8 million to settle civil allegations of insider trading brought by the U.S. Securities and Exchange Commission. Kumar’s settlement with the SEC comes four months after he pleaded guilty in the largest ever hedge fund insider trading case. He’s cooperating with prosecutors in the criminal case against Galleon Group LLC co-founder Raj Rajaratnam , who has denied wrongdoing. The settlement covers $2.6 million in illegal profits for Kumar and interest of about $190,000, according to a filing today in federal court in Manhattan. Kumar also agreed as part of the settlement not to “engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.” In its civil lawsuit against Kumar, the SEC said Kumar was a friend of Rajaratnam’s and a direct or indirect investor in at least one Galleon fund. In court on Jan. 7, Kumar said Rajaratnam approached him in late 2003 or early 2004 and offered to pay him $500,000 a year in exchange for tips about McKinsey clients. Kumar said he leaked inside information to Rajaratnam over five years in return for $1.75 million and that “numerous” leaks occurred from 2004 to 2009. Robert Morvillo , a lawyer for Kumar, declined to comment today. John Heine , a spokesman for the SEC, also declined to comment. 21 Defendants Rajaratnam, 52, is the central figure in an insider trading probe that has led to criminal charges against 21 people, including 11 who have pleaded guilty. At least four of those have agreed to testify against Rajaratnam. Prosecutors said Rajaratnam used secret tips from hedge fund executives, corporate officials and other insiders to earn millions of dollars in illegal stock trades. The case is SEC v. Galleon, 09-cv-8811, U.S. District Court, Southern District of New York (Manhattan). To contact the reporter on this story: David Glovin in New York federal court at glovin@bloomberg.net .

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Gartmore May Face Client Withdrawals as Manager Investigated, Merrill Says

March 31, 2010

By Andrew Macaskill and Gavin Finch March 31 (Bloomberg) — Gartmore Group Ltd. may suffer client withdrawals following the suspension of Guillaume Rambourg , who helps oversee its two biggest hedge funds, Bank of America Merrill Lynch analyst Philip Middleton said. “Franchise damage would arguably be irrational, but it is, in our view, a scenario worth at least considering,” Middleton said in a note to clients today as he put his “buy” rating on the shares under review. Gartmore’s European hedge funds “have been a flagship product for the company” and are “a key plank of Gartmore’s expansion strategy.” Gartmore plunged 31 percent yesterday following the announcement of the investigation. The shares climbed 3.9 percent to 120.5 pence as of 10:34 a.m. in London trading today. The probe of Rambourg relates “to breaches of internal procedures regarding directing trades,” the firm said in a statement yesterday. It isn’t connected with last week’s arrests of seven people suspected of insider trading, the London-based money manager said. “Gartmore has not identified any information to date which suggests that Gartmore’s clients have suffered any loss as a result of these breaches,” the firm said. Roger Guy will oversee the assets Rambourg managed in the meantime. Caroline Villiers , a spokeswoman for Gartmore, wasn’t immediately available for comment. Rambourg joined Gartmore in 1995 and focused on European equities. He co-managed the firm’s $2.3 billion Alphagen Capella fund with Guy since it started in 2000. The pair managed 8.1 billion pounds ($12.2 billion), 37 percent of Gartmore’s assets and accounted for 40 percent of the firm’s revenue, according to company filings. Rambourg is an essential employee whose departure “could impact more heavily on Gartmore’s business than the loss of others,” according to the company’s prospectus. Rambourg owns about 11.8 million Gartmore shares, making him the second- largest employee investor behind Guy. To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net

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Gartmore Suspends Fund Manager Rambourg Pending Outcome of Investigation

March 30, 2010

By Andrew MacAskill March 30 (Bloomberg) — Gartmore Group Ltd., the British money manager that went public in December, suspended Guillaume Rambourg pending the outcome of an internal investigation. The suspension isn’t connected with last week’s arrests of seven people suspected of insider trading, Gartmore said in the statement. Roger Guy will oversee the assets Rambourg managed in the meantime, the firm said. The probe relates “to breaches of internal procedures regarding directing trades,” the firm said in the statement. “Gartmore has not identified any information to date which suggests that Gartmore’s clients have suffered any loss as a result of these breaches,” the firm said. To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net .

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Novum Statement on FSA Insider Trading and Hedge Fund Fraud Case

March 26, 2010

New York (HedgeCo.net) – The Financial Services Authority (FSA) visited the offices of independent UK securities stockbroker, Novum Securities, on the 23 of March in relation to an investigation into a single member of Novum’s staff, who has been with the firm since July 2009. Novum Securities said that they have, “been cooperating fully with the investigation and will continue to do so.” In what is being called the largest insider trading crackdown in Britain’s history, an operation was carried out this week by 143 FSA personnel together with officers from the Serious Organised Crime Agency (SOCA). Documents and computers were seized from both residential and business premises, according to reports. A junior trader at hedge fund Moore Capital was arrested and an employee at Deutsche Bank was also taken for questioning. All together, 6 men were arrested on suspicion of being involved in a sophisticated and long-running insider dealing ring, the FSA said in a statement. Alex Akesson Editor for HedgeCo.net alex@hedgeco.net HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership in HedgeCo.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds ! Tags: Developing Stories , Hedge Fund Fraud , HedgeCo News Related posts No related posts.

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Video: Raj Rajaratnam Leaves N.Y. Restaurant Following Lunch: Video

January 22, 2010

Jan. 22 (Bloomberg) — Bloomberg’s Carol Massar reports on Galleon Group LLC founder Raj Rajaratnam’s visit to a New York restaurant for lunch today. Rajaratnam was arrested in October as part of a first wave of charges accusing him of trading on leaks from corporate officials, hedge fund traders and other insiders. Seven other people, including ex-Galleon employee Zvi Goffer, were indicted yesterday by a federal grand jury following a second wave of insider trading arrests in November. Seven people have pleaded guilty so far in the two cases. Rajaratnam denies wrongdoing. (Source: Bloomberg)

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Video: Galleon’s Raj Rajaratnam Leaves New York Restaurant: Video

January 22, 2010

Jan. 22 (Bloomberg) — Galleon Group LLC founder Raj Rajaratnam, arrested in October as part of a first wave of charges accusing him of trading on leaks from corporate officials, hedge fund traders and other insiders, leaves a New York restaurant. Seven other people, including ex-Galleon employee Zvi Goffer, were indicted yesterday by a federal grand jury following a second wave of insider trading arrests in November. Seven people have pleaded guilty so far in the two cases. Rajaratnam denies wrongdoing. (Source: Bloomberg)

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SEC to Focus on Derivatives as Insider-Trading Probes Widen, Khuzami Says

November 23, 2009

By David Scheer Nov. 23 (Bloomberg) — The U.S. Securities and Exchange Commission will focus on financial instruments such as derivatives as it broadens a crackdown on insider trading by hedge funds, enforcement director Robert Khuzami said. “The days of insider trading scrutiny being focused almost solely on the equity markets are now gone,” Khuzami said today at a New York legal conference on hedge fund regulation. After bringing its first insider trading case tied to credit default swaps in May, the SEC will “roll back the curtain on those markets and look at patterns across all markets,” he said. To contact the reporters on this story: David Scheer in New York at dscheer@bloomberg.net .

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Shankar Tells Galleon Judge Two People Gave Him Tips for Insider Trades

November 17, 2009

By David Glovin and Linda Sandler Nov. 17 (Bloomberg) — Gautham Shankar , a former trader at New York-based Schottenfeld Group LLC who pleaded guilty to insider trading in the Galleon Group case, told a judge he got secret tips from two people, according to a transcript of his guilty plea. Shankar, 35, was part of a chain of inside information in the case centering on Galleon Group founder Raj Rajaratnam that yielded $53 million in illicit profits, the government has said. Shankar’s tips on three occasions came from an individual identified in government documents only as “Tipper X,” a friend of Roomy Khan , now the government’s star witness in the case. Shankar in turn passed on the tips to others at the Schottenfeld trading firm, including Zvi Goffer , a former Galleon employee who sought tips and paid for them, according to government documents. A transcript of Shankar’s comments, made during an Oct. 20 guilty plea, became publicly available today. Prosecutors say Shankar in 2007 learned from Tipper X proprietary details about pending takeover bids for Hilton Hotels Corp. and Kronos Inc., plus a tip that Google Inc.’s earnings would be lower than expected. Shankar in turn passed on the tips to Schottenfeld colleagues including Goffer, according to court documents. Illegal Gains This insider trading ring that overlapped with Rajaratnam’s circle generated $33 million in illegal gains, according to the U.S. Securities & Exchange Commission, which has a civil case against the participants. Shankar, who lives in New Canaan, Connecticut, is currently unemployed, it said. Shankar is one of five people who pleaded guilty in the case involving Rajaratnam in which the government so far has charged 20 individuals. Also cooperating in the investigation are Ali Far and Richard Choo-Beng Lee , co-founders of San Jose, California-based hedge fund Spherix, as well as Steven Fortuna and Roomy Khan . Their guilty pleas were made public on Nov. 5. According to the criminal case, Goffer, who founded Incremental Capital LLC, is the leader of an insider trading ring of 14 that was charged Nov. 6. He passed along tips about takeovers that he got from Arthur Cutillo , an attorney at Ropes & Gray LLP, to Shankar and others, prosecutors said. The criminal case is U.S. v. Shankar, CHECK U.S. District Court, Southern District of New York (Manhattan). To contact the reporters on this story: David Glovin in New York federal court at dglovin@bloomberg.net ; Linda Sandler in New York at lsandler@bloomberg.net .

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Egypt Seeks to Improve Stock Market Regulation After Levying `Hefty Fines’

November 15, 2009

By Alaa Shahine Nov. 15 (Bloomberg) — Egypt’s financial markets regulator is seeking to strengthen regulations after imposing “hefty fines” in recent months on companies and individuals for violations that included insider trading, Chairman Ziad Bahaa El-Din said. “Most of those cases get settled by people paying very hefty fines and that’s quite a severe punishment,” Bahaa El- Din, said in an interview in Cairo last week. “In the longer term what I would like to do is to improve the structure of the market and of regulation.” The Egyptian Financial Supervisory Authority , which regulates mortgage, insurance and capital markets, wants to improve disclosure rules by making companies report information in a timely manner that may affect share prices, he said. The Egyptian Exchange suspended trading in 26 stocks last month to determine why shares as much as tripled without any apparent justification. Egypt’s EGX70 Index of small and medium-sized companies, up 59 percent this year, fell the most in almost two months after the exchange announced the suspensions. Egypt’s benchmark, the EGX30 Index has jumped 46 percent in 2009, the best performer among Arab benchmark indexes tracked by Bloomberg. “Anything that improves corporate governance and application of the rules can only be a good thing and will encourage foreign investors that these things are taken very seriously,” said London-based Oliver Bell , the head of Middle East and Africa at Pictet Asset Management, which has $120 billion under management. “Egypt needs foreign capital and so it is important that these things are dealt with swiftly and severely.” Suspensions The FSA suspended Cairo-based Beltone Arabia, a unit of investment bank Beltone Financial, for 30 days in August for unspecified violations, according to the regulator’s Web site . The authority required Beltone Securities to deposit 10 million Egyptian pounds ($1.8 million) in the EFSA’s Investor Protection Fund for a year. The regulator also suspended Cairo brokerage firm Al-Amal for 30 days in August. The authority didn’t disclose any of the violations on its Web site and Bahaa El-Din declined to discuss details. The bourse last month asked the companies halted from trading to submit a report about future plans. The suspensions were lifted for about 17 of the stock, Bahaa El-Din, a lawyer, said in the Nov. 11 interview. The action “seems to have improved the level of disclosure,” he said. “It’s also sending a message to those that have been concerned from time to time about insider trading and manipulation that the exchange and the regulatory body are taking it seriously.” Training Some of the disclosure problems occur because of “bad reporting” on behalf of the companies “which may not necessarily be criminally intended,” Bahaa El-Din said. He urged companies to give their investor relations officers more training. No cases for insider trading have gone to court in “recent years,” Mohamed Omran , deputy chairman of the Egyptian Exchange, said in July. Bahaa El-Din said the authority has the “discretion” to settle cases by imposing fines “but they are actually always under threat of going to prison.” According to Egyptian market regulation, people with insider knowledge cannot trade the stock 15 days before and three days after material news is announced. The authority recently changed the definition of insiders. The new description “defines more accurately who insiders are, not by relying as it used to on formal family relationships,” Bahaa El-Din said. “It’s actually a more substantive relationship where you have the capacity to know more insider information in the company by virtue of your work.” To contact the reporter on this story: Alaa Shahine in Cairo at asalha@bloomberg.net .

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Ralph Cioffi, Matthew Tannin Verdict: Ex-Bear Stearns Hedge Fund Managers NOT GUILTY On All Fraud Charges

November 10, 2009

Former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin were acquitted of a host of fraud and insider trading charges today, according to Reuters . Last year, Cioffi and Tannin were charged with insider trading, securities fraud, wire fraud and conspiracy after authorities charged that the two executives misled investors about the well-being of two Bear Stearns hedge funds. The case, which was heard in Brooklyn, New York’s District Court was widely watched as a litmus test for future fraud cases involving financial executives and the financial crisis. Here’s how the Wall Street Journal summarized the trial last month: The money managers unsuccessfully scrambled to keep two mortgage-heavy Bear Stearns hedge funds afloat in 2007 amid sinking mortgage-market prices, the first of several blows that eventually felled Bear Stearns and marked the start of the credit crisis. J.P. Morgan Chase & Co. bought the firm in a March 2008 fire sale… “This case will be viewed by many as a test of where the boundary lies between acceptable, positive spin and outright fraud,” says David Siegal, a former federal prosecutor who now is a defense lawyer at Haynes & Boone LLP. “Much of the government’s case appears poised to rely on what many previously believed was just spin.” Check back here for more information on the case….

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James Altucher: Should Insider Trading Be Made Legal?

October 20, 2009

On Friday, October 16, some very disturbing news came out. Billionaire hedge fund manager Raj Rajaratnam and several others are being accused of insider trading across several stocks. Phone calls were recorded, incriminating words were said. Its looking pretty ugly. Lots of questions remain unanswered. First, for me is, why would a billionaire who has clearly achieved great success in life and has already done many good things with his money, take such a high degree of risk. To risk even going to prison? We’ll never know the answer. But I also want to raise the question: should insider trading be considered a crime in a free market economy? One of the stocks he is accused of trading with inside information (specifically, an analyst at Moody’s was paid $10,000 to give up information that Raj made $4,000,000 on) was Hilton (HLT). On July 3, 2007, after the market closed, Blackstone announced they were buying Hilton. Raj had known and made a ton of money. Everyone knew at the time there was insider trading involved. I even went on CNBC that very weekend to discuss what had happened. On July 2, the day before the deal was announced, Hilton shares were at $33.87. On July 3, Hilton shares made one of their biggest moves ever, closing almost 7% higher at $36.05 on double the normal volume before the deal was announced. And, by the way, it was a half day in the markets that day. Then Blackstone offered $47.50 a share for Hilton. It was clear even then that someone big had known something and had acted illegally on that information. In a column for the Financial Times I wrote “Certainly they’ll catch one or two criminals here” and they did. Its very hard to track down insider trading and I give the SEC kudos for doing a great job here. Did they catch all the culprits? Probably not, but they certainly made anyone thinking of doing this crime very very scared. But should insider trading even be illegal? The obvious answer is of course it should be, else the average investor will get taken advantage of. If some players in a market have an advantage, then some have a disadvantage and that’s not fair. However, I’m not sure its so black and white. Here are the benefits of making insider trading legal: The more information in a market, any market, the more efficient prices become. If informed investors start buying or selling based on privileged information, asset prices will rise to their “correct” level. For instance, in the Hilton case, we probably would have seen a smooth progression of the stock price from33 to45 over the prior month as talks progressed, instead of the spike in just one day. Fraud will be exposed earlier. This is a very key point to the argument. Enron is an example where tens of thousands of investors got burned because they were piling into the stocks during the later stages of its fraud. If insiders were selling we would’ve seen a much swifter move down, and probable fraud exposed. Companies will either become more transparent, to keep the retail investor happy, or will themselves enforce secrecy rather than being complacent with the idea that the law somehow protects their secrets. One concern is that there will be a flight of liquidity because people will be concerned about the legitimacy of our markets. Rather, the opposite will occur. More enforcement dollars will be used to uncover actual frauds such as the next Enron or Worldcom. Arguably, these frauds are a thousand times more dangerous for the retail investor than what is probably a victimless crime such as insider trading. Insider trading is almost impossible to prosecute and the government wastes countless dollars trying. I’m simply raising the question. Could legal insider trading lead to a more efficient market that would ultimately benefit investors and allow investigators to probe elsewhere? I’m scared about all the ponzi schemes, the mini-Madoffs, left uncovered. What do you think?

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Insider Trading Bust Shows SEC May Have a Pulse: Susan Antilla

October 20, 2009

Commentary by Susan Antilla Oct. 20 (Bloomberg) — The Securities and Exchange Commission’s Big Bust on Friday is an example of everything that’s right, and everything wrong, with the agency that’s been bungling its job of keeping the financial markets safe. Working with federal prosecutors in New York, the SEC charged hedge fund operator Raj Rajaratnam , whose net worth of $1.5 billion placed him at No. 236 on Forbes magazine’s 400 Richest Americans list, with insider trading. Rajaratnam’s lawyer, James Walden, says his client is innocent and that “we intend to vigorously defend him in court.” With its simultaneous charges against a network of other alleged cheaters on Wall Street and in the C-suite, the SEC’s case was enough to bring tears to the eyes of Wall Street nostalgia buffs. The SEC always did have a knack for insider-trading cases, notwithstanding its recent back-and-forth with charges that haven’t stuck against billionaire Mark Cuban . The agency sent Wall Street into a collective cold sweat in the 1980s, when the Nov. 14, 1986, news that Ivan Boesky had agreed to pay $100 million for insider trading sent a signal that the jig was up for lawbreakers who swapped illegal inside-information. The agency was a regulatory mensch back then, working with prosecutors to do the spadework that helped send Boesky, Kidder, Peabody & Co.’s Martin Siegel , and Drexel Burnham Lambert’s Dennis Levine and Michael Milken to the slammer. If you can imagine it, Wall Street was actually afraid of the SEC after the Boesky bust. Image Building Today, the only people getting captured are SEC lawyers who are hot for big paychecks at the brokerage firms they’re supposed to be regulating. After getting skewered in the September report “Investigation of Failure of the SEC to Uncover Bernard Madoff’s Ponzi Scheme” by SEC Inspector General David Kotz , the agency has been trying to polish its image. It’s no surprise that the agency’s big splash with Rajaratnam and friends came in an area where it tends to excel. But what gives that it went from superstar work in the 1980s to two declining decades since then? Thomas Gorman , chairman of the securities litigation group in the Washington office of the law firm Porter Wright Morris & Arthur , says that when he worked at the SEC in the 1970s and 1980s, “they were really the market leaders,” taking on issues like insider trading and illegal payments to foreign governments and making sure the regulated paid attention. Vision Loss Today, the SEC is a reactive institution, going after “the flavor of the month” as determined by cases initiated by U.S. attorneys or investigative reports in prominent business publications, Gorman says. In the 1980s, though, “they had a vision” of what was important to pursue, and, particularly with insider trading, pushed to make their legal cases stick. Indeed, only 4 percent of new cases initiated at the agency involved insider trading in 1984, but then-chairman John Shad made it his pet project, warning lawbreakers that he would come down on them “with hobnail boots” should they violate insider- trading laws. Try to find fighting words like that from any recent SEC leaders. Shad testified before lawmakers in support of the Insider Trading Sanctions Act of 1984, which made insider trading more expensive for cheaters: get caught, and you’d be subject to fines of as much as three times your profits, plus pricey sanctions for any criminal penalties. After the act was passed, insider-trading cases took an ever-larger portion of new cases opened each year, peaking at 13 percent of the SEC’s new caseload in 1989. Since 1998, it has made up between 7 percent and 11 percent of new cases the agency takes on in a given year. Chasing Big Shots It’s worth mentioning that the same SEC that today chases scandals it reads about in the papers once had the courage to pursue big shot financiers who were venerated by slobbering financial journalists. BusinessWeek magazine once compared Michael Milken to J.P. Morgan Sr. Institutional Investor magazine called him “Milken the Magnificent.” In those days, top guys complained that they were picked on because they were powerful. These days, the power of someone like Bernie Madoff helps him escape scrutiny. Imagine if Boesky or Milken had been asked to sit on an SEC advisory committee like Bernie was. Given the agency’s expertise in insider trading, Rajaratnam and his band of alleged illegal traders are no doubt wishing they’d been dabbling in one of the multitudinous areas where the SEC is wanting. I mean hey, where are the longstanding experts on dark pools? Or credit default swaps? Or any of those products and practices that less than 1 percent of the population really understands? Or even Ponzi schemes, which we all understand, but we don’t seem to be able to stop. Good for the SEC that it’s drawing on its experience in insider trader to bring new cases. But there are a lot of new games in town, too. I’m waiting for the hobnail boots to come crashing down on a dark pool and a credit default swapper or two. ( Susan Antilla is a Bloomberg News columnist. The opinions expressed are her own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: Susan Antilla in New York at santilla@bloomberg.net

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Video: Former Banker Faces Prison Term

September 11, 2009

Former Morgan Stanley Managing Director might get up to seven years in prison for insider trading. (Bloomberg News)

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SocGen’s Mustier Quits Lender as French Regulator Probes Insider Trading

August 6, 2009

By Fabio Benedetti-Valentini (Corrects size of Day sales in third paragraph.) Aug. 6 (Bloomberg) — Societe Generale SA’s former head of corporate and investment banking Jean-Pierre Mustier resigned after the French stock market regulator’s sanctions commission opened a probe into possible insider trading. Mustier, who ran the unit at the time of the bank’s 4.9 billion-euro ($7 billion) trading loss in January 2008, had planned to leave by year-end, Paris-based Societe Generale said in an e-mailed statement today. He brought forward his departure “in the interests of the group,” according to the bank. Robert Day , who founded TCW Group Inc. and served as a non- executive director on Societe Generale’s board, is also under investigation by the market watchdog’s sanctions commission for insider trading, the bank said. Day and his foundation sold 45 million euros of Societe Generale shares less than a week before the trading loss, blamed by the bank on trader Jerome Kerviel , was made public, the regulator said on its Web site last year. Day and Mustier reject the allegations of insider trading, Societe Generale said in the statement. The regulator’s sanctions commission did not open proceedings against Societe Generale, the company said. To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net .

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