Articles Tagged with 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.




Authorities are saying that SAC Capital is likely to face civil fraud charges based on allegations of a massive insider trading scheme in which  Mathew Martoma, a former SAC portfolio manager got advanced confidential findings on an Alzheimers drug trial from a medical school professor. SAC bet against the share prices of pharma companies Wyeth and Elan enabling more than $276 million to be made illegally for the fund and others. The government also said in court papers that Martoma caused other investment advisers to buy shares in the drug companies and then ditched their investments before the publica became aware of the poor results of the trials. Martoma worked with CR Intrinsic Investors an affiliate of SAC Capital Investors

The life and trials of the hedge fund managers and the market insiders turned tipsters will surely be made into a major Hollywood film soon. I’d bet there are writers already working the project as the plot unfolding in the NY Courtroom tells a fascinating tale of human greed. The writers won’t have a hard time constructing their dialogue. All they need to do is listen to the hundreds of wiretap recordings. Having heard the actual wiretap recordings of Raj Rajaratnam’s conversations with Anil Kumar, his  McKinsey tipster, it is easy to see why prosecutors chose Rajaratnam for the first trial.He is a brilliantly cunning networker, spreading his inquiries far and wide, gathering minute details from friends and paid informants and setting off bets resulting in billions in profits. He wasn’t so brilliant as to conduct his business in private though. Now,  as a subplot, sitting silently in the wings are four other hedge fund managers,  and many assistants also charged with securities violations, conspiracy  and some with obstruction of justice. They  are no doubt watching this trial in advance of their own. I hope the Hollywood writers don’t forget this. Imagine what life is like for them, watching their world unravel, spiraling down and facing many years in a federal penitentiary.  Listening to Rajaratnam, hearing him is a little like watching an experienced military field commander in battle. Aggressively gathering information from all platoons, drones, satellite and other intel to develop precise, well focused decisions based on all data. Unfortunately for Rajaratnam, the evidence against him appears damning. He accepts confidential  information (allegedly), then instructs his web of contacts on just what information wants and needs and how they should get it, allegedly. Query, if Rajaratnam loses and is sentenced heavily, will the many others similarly charged plead guilty in the hopes of a lighter sentence? The answer is not clear. Take Sam Barai, the Harvard B School Alum, nearly deaf founder of Barai Capital Management. The problem is that he has been charged with wire fraud and conspiracy to commit securities violations and these have minimum prison sentences under the federal guidelines. The question is what would he gain from a plea deal as his sentence might be quite long? Authorities also allege that Barai and research analyst Donald Longueuil sought to conceal their activities by destroying documents, emails and computer records and as a result they were both also charged with obstruction of justice, which tends to bode poorly for a low sentence if Barai were to plead guilty. A lot may depend on the nature of the evidence against him in terms of wiretap recordings. If they are similar to those played in court over the past week, his own words may result in his conviction. It is said that Rajaratnam could face ten years in prison if convicted. To listen to the wiretapped conversations of Raj Rajaratnam and his sources, see The Wall Street Journal.

The Walt Disney Executive Assistant who conspired with her boyfirned to sell info about Disney was sentenced to four months of home confinement for conspiring to sell confidential info about the company. In addition, the employee Bonnie Hoxie will serve three year probation and will perform 100 hours of community service.

The Securities and Exchange Commission (SEC) is investigating whether traders are using exchange traded funds (ETF’s) to hide insider trading. ETF’s are a relatively new product that can be bought and sold like stock. ETF’s are desgined to track the price of a designated index like Standard & Poor’s 500 or the Dow Jones Industrial Average. ETF’s may be used to profit from a single stock rising while disguising trading patterns and a trader with inside information could purchase an ETF that holds the company’s stock and short the other stocks in the portfolio. This is known as ET stripping. The information on the SEC interest in EFT’s comes on the heels of arrests yesterday on insider charges of Harvard grad Noah Freeman and Donald Longueil from SAC as well as Harvard Business School alum Sam Barai, founder of Barai Capital Management. These individuals and others were charged with insider trading as part of a national crackdown on the practice. The U.S. Attorney’s Office has said that arrests in the investigation of insider trading regarding employees of Primary Global Research (PGR) and that the investigation is widespread and long-term. 46 people have been arrested in the case and 29 have plead guilty. Many of those who have plead guilty are cooperating with the government, revealing detailed information which is expanding, strengthening and building the government’s case. There is detailed evidence showing destruction of documents and emails in an attempt to cover up the crimes alleged. There are also text messages and emails implicating those who have been charged. In one case, an individual cut up his USD computer drive and deposited the parts in different garbage cans. SAC Capital Investors of Stamford Connecticut says it is cooperating with authorities. It is not known as to whether the fund itself or its founder Steve Cohen will be charged for any reason. Yesterday, a CitiGroup Hedge Fund was linked to the insider trading ring. According to the criminal complaint filed in federal court and a lawsuit by the SEC, the CitiGroup hedge fund made over $450,000 by trading in securities of Fairchild Semiconductor International after obtaining inside information. The investigation as to who was involved is expected to be part of the federal arrests that are ongoing.

Harvard graduate and former SAC employee Noah Freeman has been charged with insider trading and reports are he has plead guilty and has been cooperating with the FBI in the hopes of a reduced sentence. His charges followed closely, the charges and arrest of Harvard Business School Alum Sam Barai who headed a large hedge fund. Barai is said to have told others involved to shred evidence and this was recorded by the FBI. Freeman was a research analyst for the hedge fun. Before working for SAC, Freeman worked for Brookside Capital (a subsidiary of Boston’s Bain Capital) and then went to work for Sonar Capital and then to SAC. After leaving SAC, he was a teacher at the Winsor School where he taught economics in the history department. It is alleged that Freeman used employees working at an expert networking firm (Primary Global research). He specialized in research and trading in the technology and semiconductor sectors.

The Department of Justice has now filed new charges as part of its national investigation of insider trading. A California consultant for an expert networking firm was charged with selling insider info to a hedge find on Nvidia Corp and Marvell Technology for $200,000. The hedge fund is presently unidentified. Expert networking companies match investors with specialists who provide insights into specific markets. Marvell makes chips for the Blackberry phone and Nvidia creates electronics. Last month the government issued subpoenas to the $12 billion fund SAC Capital Advisors, one day after hedge funds Level Global Investors LP and Diamondback Capital Management LLC were raided by the FBI. The central question at trial, if these cases reach trial, will be when is something research analysis and when is it insider information? There is no bright line, interestingly. Traditionally, insider trading is defined as trading of on a coporation stock or other securities by individuals with access to non public info about the company. Securities analysts gather, compile information on companies and issue recommendations to traders. It is legal if their reports may include non material non public information and public info. However, there is actual statutory definition of insider trading.