Articles Posted in insider trading

AdobeStock_64352337-300x200In an emergency court order, the Securities and Exchange Commission (SEC) announced that they will be freezing all assets in relation to an alleged insider trading case. This case involved the oil-and-gas conglomerate Chevron Corporation and their intentions to acquire Anadarko Petroleum Corporation, which was reported to yield roughly $2.5 million in profits.

Chevron is a multinational energy corporation based in the United States. They announced that they intended to invest in outstanding shares of Anadarko, which is also based in the U.S. and sells petroleum. While the buying of shares warrants no action on its own, Chevron intended to acquire them for $65 per share in cash and stock. This type of investment would represent a 38 percent premium over Anadarko’s closing price pre-announcement.

The SEC complaint filed in the U.S. District Court for the Southern District of New York identified a series of transitions that could be considered suspicious. Days before the announcement, unknown traders allegedly used foreign brokerage accounts in the United Kingdom and Cyprus to purchase out-of-the-money call options through U.S. based brokerage firms and on U.S. based exchanges. After the announcement, Anadarko shares rose in price significantly. Brokerage account customers benefited greatly by either utilizing their right to gain large positions of Anadarko stock at a discount or selling many of the option contracts for profit.

insider-trading-300x168Charlie Jinan Chen, a Boston restaurant owner, is accused of insider trading of Vistaprint stock after illegally receiving confidential information from a former Vistaprint employee. His wife, Shui Foon Mak, is also being charged for her part in reaping the illegal profits, which are believed to be in excess of $850,000. But, how did this all work?

Insider Information Leaked from 2012-2014

Vistaprint is an eCommerce platform that specializes in selling customizable business materials and other products. From 2012-2014, Chen received insider information from an employee of Vistaprint, identified only as “Jenny” in court documents. Jenny was an accounting manager that reportedly handled Vistaprint’s quarterly financial statements, which included confidential information that would remain unavailable to the public prior to a set date for release. It was this information that Chen allegedly used to generate fraudulent profits.

insider tradingAccording to the Securities and Exchange Commission’s 2018 Annual Report, 262 tips were received from whistleblowers regarding insider trading and resulted in a total of 56 charges throughout the year. As one of the SEC’s most successful years in combating insider trading, it is evident that the combination of whistleblower tips and modern technology are the key to securing the integrity of the securities market.

What is Insider Trading?

According to the SEC’s, “Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.”

United States House of Representatives member Christopher Collins, a Republican from New York, was arrested and charged with illegally sharing inside tips with his son about an Australian biotechnology company Innate Immunotherapeutics, Ltd .  Rep. Collins was a member of Innate’s board of directors and one of the company’s largest shareholders, holding approximately 16.8% of its stock, the indictment said. representative Collins has served in the House of Representatives since 2012. It is alleged that he conveyed material non-public information about the failed trial of a multiple sclerosis drug to his 25-year-old son, Cameron Collins, so that he could trade on the tip. Prosecutors assert that his son sold nearly 1.4 million Innate shares and passed the information onto other individuals, including his fiancée and her father, Stephen Zarsky. Mr. Zarsky then sold all of his Innate shares and shared the tip with others. Innate announced the failed drug trial after U.S. markets had closed on June 26, 2017. The next day, the company stock dropped 90%. The indictment says that the tip allowed the defendants to avoid $768,000 in losses.

Rep Collins, Cameron Collins and Mr. Zarsky were charged with 10 criminal counts, including securities fraud, wire fraud and making false statements during interviews with the Federal Bureau of Investigation. Before this indictment, Collins was already under investigation for his role in promoting Innate Immunotherapeutics.  In October, the Office of Congressional Ethics found “substantial reason to believe” Collins violated federal law and House rules by meeting with federal officials in his congressional capacity to seemingly benefit the firm and also that he shared private information about the firm to solicit investors.




In case you haven’t read some of the background of the worldwide hacker group doing insider trading, the actual facts surrounding the worldwide group that gained access since 2010 to news wire services including Business Wire and MarketWire, gaining access to tens of thousands of early releases on major business deals, reads like a Hollywood script fit for George Clooney and his friends in Oceans Eleven.

The Securities and Exchange Commission, investigating the 5 year hack, says that the coordinated ring of traders profited in excess of $100 million and possibly a lot more. According to reports, several Ukraine based hackers  penetrated the computers of the news services using stolen name and password information on to unscrupulous traders concerning major market affecting business news ahead of the actual news releases.

Those traders then took the information and bought stock in the companies involved.

Iftikar “Ifty”Ahmed, 1999 Harvard Business  School Grad and  Connecticut venture capital executive accused of insider trading and of cheating his clients out of tens of millions of dollars has fled the country, the U.S. Securities and Exchange Commission says.

Ahmed, a former general partner at Oak Investment Partners, left the United States  before May 18directly violating a judge’s order in an insider trading case . He had been restricted to traveling in only three US States.

The SEC says that his “recent flight from the United States” was a reason to expand an asset freeze to include various properties owned by Ahmed. A federal judge in Connecticut granted the request on Thursday.

The second U.S. Court of Appeals in New York has rendered a decision which expert say may harm  future insider trading prosecutions. In fact, the Department of Justice has already dropped charges against several defendants accused of trading on inside information, including some who pleaded guilty saying they could not prove the cases under the new legal precedents.

In December, the appellate court overturned the 2012 convictions of former hedge fund traders Todd Newman and Anthony Chiasson. The Court said that prosecutors must prove traders knew the person who gave them an inside tip gained some tangible reward for giving the tip. This week, the court declined to re-hear the case.

It is expected that many recently prosecuted for insider trading will seek dismissal of their case base don the ruling. Some observers suggest the decision might also lead the way for legislation.

Citing a recent U.S. court decision which narrows the definition of insider trading, Galleon Group hedge fund founder Raj Rajaratnam and former Goldman SachsGroup Inc director Rajat Gupta are seeking to overturn penalties imposed against them for insider trading. .

Rajaratnam, is trying to void a $92.8 million penalty in a U.S. Securities and Exchange Commission civil case and Gupta wants to throw out his criminal conviction. In arguing for lesser punishments, both men cited a Dec. 10 ruling by the 2nd U.S. Circuit Court of Appeals in New York that overturned two insider trading convictions, which said insider trading required knowledge that insiders who passed confidential tips did so in exchange for personal benefits “of some consequence.”

Rajaratnam, 57, was convicted of fraud and conspiracy over a variety of trades that prosecutors said generated $63.8 million of illegal profit. Gupta, 66, , was convicted of passing tips to Rajaratnam about Goldman’s financial results and an investment from Warren Buffett’s Berkshire Hathaway Inc.

Hedge funds and other investors using advanced internet technology can obtain documents ahead of “normal” internet users, sometimes a minute or more ahead, giving them a significant edge on the rest of the market. The question for business and legal scholars is why is this not insider trading?

According to The Wall Street Journal, the superfast, sophisticated trading firms, which set up direct lines to trade on stock are getting early delivery of corporate news releases from Business Wire, giving them just enough time to trade on the information before others do.

In addition these companies are getting documents faster through the SEC Edgar document distribution system

A former Merck & Co. Inc. pharma analyst from Cambridge was charged with insider trading for allegedly tipped off a business school classmate about  Merck’s interest in acquiring Cambridge-based, hepatitis C drug developer Idenix Pharmaceuticals Inc., before the purchase was announced this past June, court documents said.The Securities and Exchange Commission and federal prosecutors have filed a civil and criminal complaint against Zachary Zwerko. The info apparently  allowed the friend to make $683,000,authorities said.

Zwerko also told his friend that several pharmaceutical companies were interested in buying Ardea Biosciences, Inc., court records said. AstraZeneca PLC eventually purchased Ardea in 2012.

In both cases, the trader who is not named in court documents, purchased shares in the smaller companies before they were acquired and then sold them later for significant profits, authorities said.