DEFENDANT IN INSIDER TRADING CASE INVOLVING AMATEUR GOLFERS PLEADS GUILTY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23264 / May 18, 2015

Securities and Exchange Commission v. Eric McPhail, et al., Civil Action No. 1:14-cv-12958 (District of Massachusetts, Complaint filed July 11, 2014)

United States v. Eric McPhail and Douglas Parigian, 1:14-cr-10201-DJC (District of Massachusetts filed July 9, 2014).

Defendant in SEC Insider Trading Case Involving Group of Amateur Golfers Pleads Guilty to Criminal Charges

The Securities and Exchange Commission announced that, on May 13, 2015, Douglas Parigian pleaded guilty to criminal charges of conspiracy and securities fraud for his role in an insider trading ring involving trading in the stock of Massachusetts-based American Superconductor Corporation. The criminal charges against Parigian arose out of the same fraudulent conduct alleged by the Commission in a civil securities fraud action filed against Parigian and others in July 2014.

On July 9, 2014, the U.S. Attorney's Office for the District of Massachusetts indicted Parigian and another defendant, Eric McPhail, for conspiracy and securities fraud and, for Parigian only, lying to FBI agents. The U.S. Attorney charged that McPhail had a history, pattern and practice of sharing confidences with a senior executive at American Superconductor. Between 2009 and 2011, the senior executive provided McPhail with material, nonpublic information concerning the company's quarterly earnings and other business activities (the "Inside Information") with the understanding that it would be kept confidential. Instead, McPhail used email and other means to provide the Inside Information to his friends, including Parigian, with the intent that they profit by buying and selling American Superconductor stock and options. Parigian used the Inside Information to profit on the purchase and sale of American Superconductor stock and options.

On July 11, 2014, the Commission filed a civil injunctive against Eric McPhail and six of his golfing buddies, including Parigian, alleging that McPhail repeatedly provided them with material nonpublic information about American Superconductor. According to the Commission's Complaint, McPhail's source of the information was an American Superconductor executive who belonged to the same country club as McPhail and was a close friend. The Complaint further alleged that, from July 2009 through April 2011, the executive told McPhail about American Superconductor's expected earnings, contracts, and other major pending corporate developments, trusting that McPhail would keep the information confidential. McPhail instead misappropriated the information and tipped his friends, who improperly traded on the information. Without admitting or denying the allegations, four defendants settled the SEC's charges by consenting to the entry of judgments permanently enjoining them from violating the antifraud provisions of the Securities Exchange Act of 1934, paying disgorgement and civil penalties. The SEC's case against Parigian, McPhail and another individual, Jamie Meadows, is ongoing.

SEC CHARGES FRIENDS WITH INSIDER TRADING REGARDING COOPER TIRE COMPANY ACQUISITION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

04/02/2015 12:30 PM EDT

The Securities and Exchange Commission charged two longtime friends who illegally profited from insider trading on news of a proposed acquisition of Cooper Tire and Rubber Company by Apollo Tyres Ltd.

In a complaint filed in U.S. district court in Connecticut, the SEC filed fraud charges against Amit Kanodia, of Brookline, Massachusetts, an entrepreneur and private equity investor, and Iftikar Ahmed, of Greenwich, Connecticut, a general partner at a venture capital firm.  The SEC named Rakitfi Holdings LLC, a company owned by Ahmed, and Lincoln Charitable Foundation, a supposed charity operated by Kanodia, as relief defendants.  The SEC is seeking to have the defendants return their allegedly ill-gotten gains with interest and pay civil monetary penalties.

The U.S. Attorney’s Office for the District of Massachusetts announced parallel criminal charges against Kanodia and Ahmed.

The SEC alleges that by April 2013, India-based Apollo Tyres was engaged in serious negotiations to acquire Cooper Tire, of Findlay, Ohio.  Although the acquisition was never completed, the complaint alleges that Cooper Tire’s stock price jumped 41 percent when the acquisition was announced in June 2013.  The SEC alleges that Kanodia tipped Ahmed and another friend prior to the acquisition announcement after learning of the deal from his wife, then the general counsel at Apollo who was intimately involved in Apollo’s efforts to acquire Cooper Tire.

According to the SEC’s complaint, Kanodia shared the highly confidential information with Ahmed who began buying significant amounts of Cooper Tire stock and options.  Once news of the deal was public, Ahmed immediately liquidated his Cooper Tire holdings, reaping more than $1.1 million of ill-gotten profits, according to the complaint.  Ahmed later paid Kanodia a kickback by transferring $220,000 to Lincoln Charitable Foundation, a supposed charity that Kanodia controlled and used to mask the kickback, the complaint alleges.

A second close friend of Kanodia, identified in the complaint as Tippee 1, also profited by trading on the confidential information provided by Kanodia and paid a portion of his illicit gains to Kanodia using the same supposed charity, the SEC’s complaint further alleges.

“We allege that Kanodia gave inside information to two close friends who then kicked back a portion of their insider trading profits to a supposed charity that Kanodia controlled,” said Joseph G. Sansone, Co-Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit.  “Despite Kanodia’s attempts at concealment, the SEC staff was able to uncover and unravel the scheme.”

The SEC’s complaint charges Kanodia and Ahmed with violating federal anti-fraud laws and a related SEC ant-fraud rule. Rakitfi Holdings and Lincoln Charitable Foundation are named as relief defendants in the SEC’s complaint for the purpose of recovering ill-gotten gains from the trading.

The SEC’s investigation, which is continuing, has been conducted by Jay A. Scoggins and Jeffrey E. Oraker of the Market Abuse Unit in the Denver Regional Office with assistance from Patrick A. McCluskey of the Market Abuse Unit in the Philadelphia Regional Office.  The case has been supervised by Daniel M. Hawke, Chief of the Market Abuse Unit, and Mr. Sansone, and the litigation will be led by Nicholas P. Heinke and Mark L. Williams of the Denver Regional Office.  The SEC appreciates the assistance of the U.S. Attorney’s Office in Boston, the U.S. Attorney’s Office in Connecticut, the Federal Bureau of Investigations, and FINRA, the Financial Industry Regulatory Authority.

NY INVESTOR RELATIONS FIRM PARTNERY CHARGED WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today charged a partner at a New York-based investor relations firm with insider trading on confidential information he learned about two clients while he helped prepare their press releases. 

The SEC alleges that Kevin McGrath sold his shares in Misonix Inc. upon learning that the company was set to announce disappointing financial results.  The SEC further alleges that McGrath bought stock in Clean Diesel Technologies Inc. when he learned about the company’s impending announcement of positive news, and he profited when its stock price nearly doubled.  McGrath’s illicit profits and avoided losses from insider trading in both companies totaled $11,776. 

McGrath, who lives in Brooklyn, N.Y., and works at Cameron Associates, agreed to settle the charges by paying disgorgement of $11,776, prejudgment interest of $1,492, and a penalty of $11,776, for a total of $25,044. 

“Investor relations firms owe their clients a duty to maintain in strict confidence the important and sensitive information that clients impart for the sole purpose of obtaining help and advice on how best to communicate forthcoming news to investors,” said Andrew M. Calamari, director of the SEC’s New York Regional Office.  “McGrath’s self-centered misconduct betrayed both his own firm and his firm’s clients whose confidential information he exploited for personal gain.”

The settlement also includes a “conduct-based injunction” that permanently requires McGrath to abstain from trading in the stock of any issuer for which he or his firm has performed any investor relations services within a one-year period.  His present or any future firm is required to provide written notice to a client upon any intent to sell shares received as compensation for services performed, and must receive written authorization for the sale from the management of that company.

“McGrath used one hand to help clients draft their press releases while using the other to trade illegally in their stock,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office.  “This settlement imposes additional trading limitations on McGrath in the form of a conduct-based injunction to ensure that he doesn’t commit the same transgression again.”

According to the SEC’s complaint filed in federal court in Manhattan, McGrath purchased Misonix shares in April 2009.  He later performed work on a press release in which Misonix was set to announce disappointing quarterly results.  McGrath ascertained the company’s target date to release the negative news, and sold all of his Misonix shares shortly before the press release was issued on May 11, 2009.  By doing so, McGrath avoided losses of $5,400 when Misonix’s share price subsequently dropped 22 percent.

The SEC alleges that McGrath also performed work on a press release in which Clean Diesel was announcing approximately $2 million in orders it received for certain products.  Merely minutes after finding out on May 24, 2011, that the press release was bound for issuance the following day, McGrath purchased 1,000 shares of Clean Diesel stock.  The stock price rose 95 percent upon the positive news, and McGrath sold all of his Clean Diesel shares on May 27 for illicit profits of $6,376.

The SEC’s complaint charges McGrath with violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Without admitting or denying the allegations, McGrath agreed to be permanently enjoined from future violations of these provisions of the federal securities laws.  The settlement is subject to court approval. 

The SEC’s investigation was conducted by Dina Levy, Daniel Marcus, and George O’Kane.  The case was supervised by Mr. Wadhwa and Sharon Binger.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

4 CHARGED IN $12 MILLION INSIDER TRADING CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Four California Residents in $12 Million Insider Trading Scheme

The Securities and Exchange Commission today charged four Northern California residents with insider trading in Ross Stores stock options based on nonpublic information about monthly sales results leaked by one of the retailer’s employees.

The SEC alleges that Saleem Khan was routinely tipped by his friend Roshanlal Chaganlal, who was a director in the finance department at Ross headquarters in Dublin, Calif. Khan used the confidential information to illegally trade on more than 40 occasions ahead of the company’s public release of financial results. Besides trading in his own brokerage account, Khan traded in his brother-in-law’s account as well as an account belonging to another acquaintance. Khan also tipped his work colleagues Ranjan Mendonsa and Ammar Akbari so they too could trade in Ross stock options based on the nonpublic information. The insider trading resulted in collective profits of more than $12 million.

The SEC further alleges that at the outset of the scheme, Chaganlal gave $17,000 to Khan for the purpose of insider trading in Ross securities using the brother-in-law’s account. They attempted to disguise the exchange by using two cashier’s checks for $8,500 purchased in the name of Chaganlal’s wife of a different surname. Khan later funneled $130,000 of the generated trading profits back to Chaganlal by using third-party intermediaries. For example, Khan wrote Akbari a check for $35,000, and Akbari in turn wrote two checks totaling $35,000 to Chaganlal’s wife. Another $75,000 was routed in a roundabout way to a title company so it could be credited at closing toward Chaganlal’s purchase of a newly-built home.

According to the SEC’s complaint filed in federal court in San Francisco, Khan separately made approximately $450,000 in illicit profits by insider trading in stock options of software company Taleo Corporation ahead of its 2012 acquisition by Oracle Corporation. Khan began purchasing large numbers of options in Taleo six days before the merger announcement based on nonpublic information he received from an insider he knew at Oracle. Khan had never previously traded in Taleo securities.

The SEC alleges that the serial insider trading involving Ross securities began in August 2009 and continued until December 2012, when Chaganlal was terminated by the company. He had access to confidential sales figures on an internal webpage limited to a relatively small group of Ross employees. Chaganlal regularly communicated the confidential details to Khan so he could trade ahead of impending monthly sales announcements by Ross. Khan generated $5.4 million in profits in his own account, and $6 million in profits in his brother-in-law’s account. Khan’s supervisor Mendonsa made approximately $800,000 in insider trading profits based on the nonpublic information that Khan in turn tipped to him. Akbari made approximately $2,000 by insider trading on Khan’s illegal tips.

The SEC’s complaint names two relief defendants - Khan’s acquaintance Michael Koza and Khan’s brother-in-law Shahid Khan - for the purposes of recovering insider trading profits in their brokerage accounts through trades conducted by Khan. They each have agreed to settle the matter by paying the court the entire amount of insider trading profits remaining in their accounts, which total $240,741 for Shadid Khan and $31,713 for Koza.

The SEC’s complaint charges Saleem Khan, Chaganlal, Mendonsa, and Akbari with violating the antifraud provisions of the federal securities laws. The complaint seeks permanent injunctive relief, disgorgement of illicit profits plus interest, and financial penalties. The complaint also seeks an officer-and-director bar against Chaganlal.

The SEC’s investigation, which is continuing, has been conducted by Victor Hong and Elena Ro. The case has been supervised by Steven Buchholz and Jina L. Choi of the Market Abuse Unit and San Francisco Regional Office as well as Joseph G. Sansone of the Market Abuse Unit. The SEC’s litigation will be led by Aaron Arnzen. The SEC appreciates the assistance of the Options Regulatory Surveillance Authority.

SEC CHARGES FRIENDS AND BUSINESS ASSOCIATES OF HOME DIAGNOSTICS, INC., CHAIRMAN IN INSIDER TRADING SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

SEC Charges Three Friends and Business Associates of Former Chairman of Home Diagnostics, Inc., in Insider Trading Scheme

The Securities and Exchange Commission today announced charges against three friends and business associates of the former Chairman of the Board at Home Diagnostics Inc., George H. Holley, for trading on the basis of inside information about an impending acquisition of the company that was illegally tipped to them by Holley.

In Complaints filed in the U.S. District Court in Trenton, New Jersey, the SEC alleges that, in 2010, Holley, who co-founded Home Diagnostics, provided his friends John Campani and John Mullin, and employee Alan Posner, with confidential information about the impending acquisition of Home Diagnostics by Nipro Corporation. Campani, Mullin, and Posner each purchased Home Diagnostics stock on the basis of Holley’s tips for combined profits of more than $105,000. The SEC previously had charged Holley and other tippees with insider trading based on the same material nonpublic information (SEC v. George H. Holley, et al., No. 3:11-cv-00205-MLC-DEA (D.N.J.)).

The SEC’s complaints charge Campani, Mullin, and Posner with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, the general antifraud provisions of the federal securities laws, and Section 14(e) of the Exchange Act and Rule 14e-3 thereunder, the tender offer fraud provisions. Without admitting or denying the allegations in the SEC’s Complaint against him, Campani, Mullin, and Posner each has consented to the entry of a final judgment that permanently enjoins him from future violations of Sections 10(b) and 14(e) of the Securities Exchange Act and Rules 10b-5 and 14e-3 thereunder. In addition, the judgment against Campani will require him to pay $26,700 in disgorgement plus prejudgment interest in the amount of $2,387, and a civil penalty of $13,350; the judgment against Mullin will require him to pay disgorgement of $10,450 plus prejudgment interest in the amount of $896, and a civil penalty of $5,225; and the judgment against Posner will require him to pay disgorgement of $67,910 plus prejudgment interest in the amount of $5,820, and a civil penalty of $33,955. The settlements are subject to approval by the Court.

Campani, Mullin, and Posner cooperated with the U.S. Attorney’s Office for the District of New Jersey in its criminal prosecution of Holley. Holley ultimately pleaded guilty to insider trading. The SEC’s civil action against Holley is continuing.

The SEC thanks the U.S. Attorney’s Office for the District of New Jersey, the Federal Bureau of Investigation, and FINRA, for their cooperation and assistance in this matter.

ALLEGED TIPPER CHARGED IN S.A.C. CAPITAL PORTFOLIO MANAGER INSIDER TRADING CASE

FROM:  SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Tipper of Confidential Information to S.A.C. Capital Portfolio Manager

On July 30, 2013, the Securities and Exchange Commission charged the tipper of confidential information to a S.A.C. Capital portfolio manager who has been charged with insider trading.

The SEC amended its complaint against Richard Lee, who was charged last week, to additionally charge Sandeep Aggarwal, a sell-side analyst who tipped Lee in advance of a July 2009 public announcement about an Internet search engine partnership between Microsoft and Yahoo. Lee purchased large amounts of Yahoo stock in the S.A.C. Capital hedge fund that he managed as well as in his personal trading account on the basis of the inside information.

In a parallel action, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against Aggarwal, who lives in India but recently returned to the U.S.

The SEC alleges that Aggarwal learned confidential details about the significant progress of the Microsoft-Yahoo negotiations from his close friend at Microsoft on July 9, 2009, and he tipped Lee with the information during a telephone call the following day. When the information was reported in the media almost a week later, Yahoo's stock price rose approximately 4 percent. S.A.C. Capital and Lee reaped substantial profits from the Yahoo shares that he purchased after speaking to Aggarwal.

According to the SEC's amended complaint filed in federal court in Manhattan, Aggarwal covered both Microsoft and Yahoo for his research firm and regularly received periodic updates from his inside source at Microsoft. Upon learning that Microsoft and Yahoo were potentially within two weeks of finalizing a deal, Aggarwal shared very specific details with Lee. Aggarwal assured him that the information came from a close friend at Microsoft who was reliable and accurate.

The SEC's amended complaint charges Aggarwal and Lee with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The amended complaint seeks a final judgment ordering Aggarwal and Lee to pay disgorgement of ill-gotten gains plus prejudgment interest and financial penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws.

THREE CHARGED WITH INSIDER TRADING ON DOW CHEMICAL ROHM & HASS ACQUISITION

FROM: U.S. SECURITES AND EXCHANGE COMMISSION
SEC Charges Three with Insider Trading On Confidential Acquisition Negotiations Between Rohm & Haas and Dow


On July 1, 2013, the Securities and Exchange Commission announced that it charged a former officer of The Dow Chemical Company (Dow), his long-time friend, and a broker with insider trading that generated more than $1 million in illicit profits based on confidential information ahead of Dow's acquisition of Rohm & Haas Co. (Rohm).


The SEC's complaint, filed in the U.S. District Court for the Eastern District of Michigan, charges Mack D. Murrell, of Saginaw, Michigan, David A. Teekell, of Tomball, Texas, and Charles W. Adams, of Conroe, Texas with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also names as a relief defendant Raymond James Financial Services, Inc. (Raymond James) for the purpose of recovering illegal profits in its firm account. Teekell has agreed to settle the SEC's charges and pay approximately $1.1 million in disgorgement, prejudgment interest, and a civil penalty.

The SEC's complaint alleges that Murrell, who was the Vice President of Information Systems for Dow, obtained confidential details about the acquisition of Rohm from his then live-in girlfriend, now wife, who was the administrative assistant to Dow's Chief Financial Officer at the time. Murrell's girlfriend knew about and worked on the pending acquisition. The complaint alleges that the day after learning from his girlfriend of a special Board meeting at which the Rohm acquisition was discussed, Murrell tipped his long-time friend Teekell during a telephone call. Immediately following the telephone call, Teekell called Adams, his broker at Raymond James, and tipped him.

The complaint further alleges that the next business day after learning of the pending acquisition, Teekell and Adams began purchasing common stock and call options in Rohm. In addition to purchasing call options in his own account, Adams purchased stock in two discretionary customer accounts. Teekell's and Adams' purchases continued until the day before the acquisition announcement on July 10, 2008, when the price of Rohm stock jumped 64 percent. Teekell made an illicit profit of $534,526 and Adams and his discretionary customers made illicit profits of $107,043 through the insider trading. Raymond James made illicit profits of $373,497 when Teekell and Adams decided not to keep certain Rohm options that Adams had purchased in Teekell's account.

A call option is a security that derives its value from the underlying common stock of the issuer and gives the purchaser the right to buy the underlying stock at a specific price within a specified period of time. Typically, investors will purchase call options when they believe the price of the stock of the underlying securities is going up. Teekell and Adams invested so heavily in two series of Rohm call options on July 9, 2008 that their investments accounted for over 86 percent and 64 percent of the total options volume for these series on that day.

The complaint seeks a final judgment ordering disgorgement of ill-gotten gains together with prejudgment interest from the defendants and the relief defendant, and permanent injunctions and penalties against the defendants.

Teekell has consented, without admitting or denying the SEC's allegations, to the entry of a final judgment permanently enjoining him from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Teekell has agreed to pay $534,526 in disgorgement, $105,346 in prejudgment interest, and a penalty of $534,526. The settlement is subject to court approval.

The SEC's investigation was conducted by Philadelphia Regional Office enforcement staff Kingdon Kase and Suzanne C. Abt. The SEC's litigation will be led by John V. Donnelly and G. Jeffrey Boujoukos






 

SEC CHARGES MAN WITH INSIDER TRADING WHILE MANAGING HEDGE FUNDS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C., March 21, 2013 — The Securities and Exchange Commission today charged Rajarengan "Rengan" Rajaratnam for his role in the massive insider trading scheme spearheaded by his older brother Raj Rajaratnam and hedge fund advisory firm Galleon Management.

The SEC alleges that from 2006 to 2008, Rengan Rajaratnam repeatedly received inside information from his brother and reaped more than $3 million in illicit gains for himself and hedge funds that he managed at Galleon and Sedna Capital Management, a hedge fund advisory firm that he co-founded. In addition to illegally trading on inside tips, Rengan Rajaratnam was an active participant in his brother’s scheme to cultivate highly placed sources and extract confidential information for an unfair advantage over other traders.

"Our complaint against Rengan Rajaratnam tells a sad tale of a man who followed his brother down an illegal path of greed to its inevitable conclusion," said George S. Canellos, Acting Director of the SEC’s Division of Enforcement.

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, added, "Rengan Rajaratnam profited handsomely from his brother’s insider trading activities, and he may have believed he wouldn’t have to pay a price for his involvement. But now he is learning the true cost of his participation in the most expansive insider trading scheme ever perpetrated."

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Rengan Rajaratnam.

According to the SEC’s complaint filed in federal court in Manhattan, Rengan Rajaratnam repeatedly received valuable insider tips from his brother that he used for illegal trading in the securities of Polycom, Hilton Hotels, Clearwire Corporation, Akamai Technologies, and AMD. For example, in July 2007, he made substantial profits trading Hilton stock in his personal account based on a timely insider trading tip from Raj Rajaratnam that Hilton was about to be taken private. Rengan Rajaratnam quickly loaded up on Hilton stock, and the price of Hilton shares jumped more than 25 percent after the news became public. Rengan Rajaratnam cashed in his recently acquired position for an illicit profit of more than $675,000.

According to the SEC’s complaint, after Raj Rajaratnam tipped him about an upcoming transaction involving Clearwire Corporation in March 2008, Rengan Rajaratnam complained to his brother that certain nonpublic information they had used to begin accumulating a position in Clearwire stock was about to be reported by the media before they could establish a larger position. Rengan Rajaratnam nevertheless profited by more than $100,000 in his personal brokerage account and more than $230,000 for Galleon hedge funds based on trades in Clearwire securities.

The SEC’s complaint charges Rengan Rajaratnam with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a final judgment permanently enjoining Rajaratnam from future violations of these provisions of the federal securities laws, ordering him to disgorge his ill-gotten gains plus prejudgment interest, and ordering him to pay financial penalties.

The SEC’s investigation, which is continuing, has been conducted by John Henderson and Joseph Sansone — members of the SEC’s Market Abuse Unit in New York — and Matthew Watkins, Diego Brucculeri, and James D’Avino of the New York Regional Office. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.

The SEC has now charged 33 defendants in its Galleon-related enforcement actions, which have exposed widespread and repeated insider trading at numerous hedge funds and by other traders, investment professionals, and corporate insiders located throughout the country. The insider trading occurred in the securities of more than 15 companies for illicit gains totaling more than $96 million.

SEC CHARGED IT SPECIALISTS WITH INSIDER TRADING

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission charged two information technology specialists at a Bend, Oregon-based health insurance company with insider trading on confidential information about the acquisition of their employer.

The SEC alleges that Daniel Vance of Bend and Blake Wellington of Hillsboro, Oregon, learned that their employer Clear One Health Plans was involved in advanced merger negotiations with competitor PacificSource Health Plans. Rather than keep the information confidential, Wellington and Vance improperly used the information to personally profit by purchasing Clear One shares. Clear One's share price jumped by more than 150 percent after the companies announced the merger on Dec. 30, 2009.

According to the SEC's complaint filed in federal court in Oregon, Daniel Vance gained access to the confidential deal information on Dec. 16, 2009, when he was asked by Clear One's CEO to help resolve an e-mail issue. Vance saw confidential merger documents being sent to the CEO of PacificSource. Vance then informed Blake Wellington, who was his supervisor. The very next day, Wellington purchased 3,700 Clear One shares and Vance purchased 1,200 Clear One shares. Clear One's share price jumped by more than 150 percent after the companies announced the merger on Dec. 30, 2009. Wellington and Vance immediately began selling their stock, reaping more than $70,000 in profits.

The SEC alleges that Wellington and Vance took unusual steps to finance their purchases of Clear One shares. For instance, Wellington obtained a $25,000 loan from an online peer lending site. Vance borrowed $5,285 from his 401(k) retirement account, sold personal computer equipment, and sold his truck to finance his purchases of Clear One shares.

The complaint alleges that, by their conduct, Wellington and Vance violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Without admitting or denying the SEC's allegations, both Wellington and Vance consented to permanent injunctions against violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Wellington consented to pay full disgorgement of his trading profits totaling $55,891.50 plus prejudgment interest of $5,644.04 and a penalty of $55,891.50, and Vance consented to pay full disgorgement of his trading profits totaling 17,509.75 plus prejudgment interest of $1,768.18 and a penalty of $17,509.75.

The SEC thanks the Financial Industry Regulatory Authority (FINRA) for its assistance in this matter.

DARK POOL OPERATOR AGREES TO PAY $800,000 PENALTY

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Oct. 3, 2012 — The Securities and Exchange Commission today charged Boston-based dark pool operator eBX LLC with failing to protect the confidential trading information of its subscribers and failing to disclose to all subscribers that it allowed an outside firm to use their confidential trading information.

According to the SEC’s order instituting a settled administrative proceeding, eBX operates the alternative trading system LeveL ATS, which it calls a "dark pool" trading program. Dark pools do not display quotations to the public, meaning that investors who subscribe to a dark pool have access to potential trade opportunities that other investors using public markets do not. eBX inaccurately informed its subscribers that their flow of orders to buy or sell securities would be kept confidential and not shared outside of LeveL. eBX instead allowed an outside technology firm to use information about LeveL subscribers’ unexecuted orders for its own business purposes. The outside firm’s separate order routing business therefore received an information advantage over other LeveL subscribers because it was able to use its knowledge of their orders to make routing decisions for its own customers’ orders and increase its execution rate. eBX had insufficient safeguards and procedures to protect subscribers’ confidential trading information.

eBX agreed to pay an $800,000 penalty to settle the charges.

"Dark pools are dark for a reason: buyers and sellers expect confidentiality of their trading information," said Robert Khuzami, Director of the SEC’s Division of Enforcement. "Many eBX subscribers didn’t get the benefit of that bargain – they were unaware that another order routing system was given exclusive access to trading information that it used for its own benefit."

According to the SEC’s order, eBX and the outside firm it hired to run LeveL signed a subscription agreement in February 2008, after which the outside firm’s separate order routing business began to use certain LeveL subscribers’ confidential trading data. In November 2008, eBX signed a new agreement with the outside firm that allowed its order routing business to remember and use all LeveL subscribers’ unexecuted order information. As a result of the agreements, the outside firm’s order routing business began to fill far more of its orders than other LeveL users did. Its order router also knew how other eBX subscribers’ orders in LeveL were priced and could use that information to determine whether to route orders to LeveL or another venue based on where it knew it might get a better price for its own customers’ orders.

According to the SEC’s order, eBX failed to disclose in required SEC filings that it allowed LeveL subscribers’ unexecuted order information to be shared outside of LeveL.

In addition to the $800,000 penalty, eBX was censured and ordered to cease and desist from committing or causing further violations of certain provisions of the federal securities laws regulating alternative trading systems.

The SEC’s investigation was conducted by Mark Gera, James Goldman, Kathleen Shields, and Dawn Edick in the SEC’s Boston Regional Office. Mr. Gera led the related examination with assistance from Paul D’Amico and Rhonda Wilson under the supervision of Associate Regional Director Lucile Corkery.