4TH INSIDER TRADING ACTION FILED BY SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Brings Fourth Insider Trading Action Relating to Mercer Insurance Group

On May 27, 2014, the Securities and Exchange Commission filed an action in the U.S. District Court for the Eastern District of North Carolina charging Ronald L. Drewery with insider trading in the stock of a publicly-traded insurance company shortly before the announcement of that company's acquisition.

The SEC alleges that Defendant Drewery misappropriated material nonpublic information regarding the impending acquisition of Mercer Insurance Group, Inc. ("Mercer"), an insurance company formerly traded on the NASDAQ, from a longtime friend who was then a member of Mercer's board of directors. On the basis of the information regarding the impending acquisition, and in disregard of his duty of trust and confidence owed to the board member, Drewery purchased 3,500 shares of Mercer between October 13, 2010 and November 19, 2010 at a weighted average cost of $17.95. Following the November 30, 2010 announcement of Mercer's acquisition, Mercer's share price rose sharply closing at $27.89 per share, approximately 48% over its November 30, 2010 closing share price. Drewery subsequently sold the 3,500 shares he controlled at prices between $28.05 and $28.25 per share, realizing illicit profits of at least $35,730.

The SEC's complaint alleges that Drewery violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In settling the SEC's charges, Drewery agreed to fully disgorge ill-gotten gains of $35,730, plus pay prejudgment interest of $3,646.50, as well as pay a penalty of $35,730. Drewery neither admits nor denies the allegations, and his settlement is subject to court approval. This is the third action that the SEC has brought in the U.S. District Court for the Eastern District of North Carolina, and the fourth total action brought, relating to this matter.

The SEC's investigation was conducted in its Atlanta Regional Office by Assistant Regional Director Aaron W. Lipson, and the litigation has been led by Senior Trial Counsel Paul Kim. The SEC thanks the U.S. Attorney's Office of the Eastern District of North Carolina and the Financial Industry Regulatory Authority (FINRA) for their assistance in this matter.

COMPANY DIRECTOR CHARGED BY SEC WITH INSIDER TRADING AHEAD OF SALE TO PRIVATE EQUITY FIRM

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

On May 22, 2014, the Securities and Exchange Commission charged a former director of a Long Island-based vitamin company and others in his family circle with insider trading ahead of the company’s sale to a private equity firm.

The SEC alleges that board member Glenn Cohen learned that NBTY Inc. was negotiating a sale to The Carlyle Group and tipped his three brothers and a brother’s girlfriend with the confidential information. Craig Cohen, Marc Cohen, Steven Cohen, and Laurie Topal all traded on the inside information that Glenn Cohen provided and reaped illicit profits totaling $175,000.

The four Cohens and Topal agreed to settle the SEC’s charges by paying a total of more than $500,000.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Glenn Cohen first learned in May 2010 that NBTY management was negotiating to sell the company. He shared the nonpublic information with his three brothers and Topal, who is the girlfriend of Marc Cohen. All four purchased NBTY shares as a result. The next month, Glenn Cohen attended additional board meetings as negotiations between NBTY and Carlyle progressed. As more information became available to the board, Steven and Craig Cohen purchased additional NBTY shares. On July 15, Carlyle announced its acquisition of NBTY at a per-share price that was 47 percent above the prior day’s closing price, enabling the Cohens and Topal to profit significantly when they all sold their NBTY shares that same day.

The SEC’s complaint charges the Cohens and Topal with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In a settlement that would permanently enjoin them from violations of Section 10(b) and Rule 10b-5, they agreed to the following sanctions:

Glenn Cohen: penalty of $153,613.25 and barred from serving as an officer or director of a public company.
Craig Cohen: disgorgement of $71,932, prejudgment interest of $9,606, and a penalty of $71,932.
Marc Cohen: disgorgement of $21,454, prejudgment interest of $2,865, and a penalty of $21,454
Steven Cohen: disgorgement of $60,226, prejudgment interest of $8,042, and a penalty of $60,226.
Laurie Topal: disgorgement of $21,780, prejudgment interest of $2,908, and a penalty of $21,780.


The Cohens and Topal neither admitted nor denied the charges in the settlement, which is subject to court approval.

SOFTWARE COMPANY FOUNDERS SETTLE SEC CHARGES OF INSIDER TRADING AHEAD OF SALE

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Three Software Company Founders to Pay $5.8 Million to Settle Charges of Insider Trading Ahead of Sale

The Securities and Exchange Commission filed insider trading charges against three software company founders for taking unfair advantage of incorrect media speculation and analyst reports about the company’s acquisition.

They agreed to pay nearly $5.8 million to settle the SEC’s charges.

The SEC alleges that Lawson Software’s co-chairman Herbert Richard Lawson tipped his brother William Lawson and family friend John Cerullo with nonpublic information about the status of the company’s 2011 merger discussions with Infor Global Solutions, a privately-held software provider. Lawson Software’s stock price had begun to climb following media and analyst reports that the company was considering a sale and multiple bidders were possible. However, Richard Lawson knew reports about possible multiple bidders were incorrect, and the merger share price offered by the lone bidder was significantly lower than what journalists and analysts were speculating. While in possession of the accurate, inside information from his brother, William Lawson sold more than one million shares of his family’s Lawson Software stock holdings. He also suggested that another trader sell shares. Cerullo sold approximately 175,000 of his company shares on the basis of the nonpublic information. When Lawson Software later announced the merger agreement at the lower-than-anticipated share price, the company’s stock value dropped 8.7 percent. By selling their shares at the inflated stock prices prior to the merger announcement, the traders collectively profited by more than $2 million.

According to the SEC’s complaint filed in federal court in San Francisco, Lawson Software was founded by the Lawsons and Cerullo in 1975 and based in St. Paul, Minn. William Lawson and Cerullo each retired in 2001, but Richard Lawson was still serving as co-chairman of the board of directors when the company began considering a possible sale. After Lawson Software and Infor Global Solutions entered into a non-disclosure agreement and met about a possible merger, Richard Lawson and other members of the board were regularly informed about the ongoing merger discussions. While Infor conducted its due diligence in late February 2011, Lawson Software began a “market check” in which its financial adviser reached out to five competitors to gauge their interest in acquiring the company. The market check elicited little-to-no interest, and Richard Lawson and the board were kept informed throughout the process.

Meanwhile, according to the SEC’s complaint, a March 8 article reported that Lawson Software had retained a financial adviser to explore a possible sale. The article identified other companies as potential acquirers of Lawson Software and led to a 13-percent jump in Lawson Software’s stock price that day. The article also fueled widespread - and incorrect - media speculation about potential acquirers of Lawson Software and possible merger prices. Soon thereafter, Lawson Software publicly confirmed an acquisition offer from Infor for $11.25 per share. Nevertheless, ensuing media and analyst reports still incorrectly suggested that other potential purchasers would likely enter the bidding and submit competing higher offers for Lawson Software. Some reports suggested a merger price of up to $15-16 per share. In reality, the same companies being speculated as potential purchasers already had informed Lawson Software that they weren’t interested in an acquisition. But fueled in part by the reports, Lawson Software’s stock price closed at $12.24 per share on March 14 - nearly $1 higher than Infor’s offer of $11.25. The stock price had increased approximately 23 percent since the March 8 article.

The SEC alleges that Richard Lawson knew that these media and analyst reports were inaccurate and the very entities mentioned as possible acquirers had in fact told the company they were not interested. He knew that Infor was the lone bidder and would not increase its offer. Richard Lawson also knew that Lawson Software’s financial adviser and board of directors viewed Infor’s bid as reasonable. After Richard Lawson tipped his brother and Cerullo with nonpublic information about the planned deal, they proceeded to sell their shares at approximately $1 per share higher than the eventual merger price of $11.25. Following the merger announcement on April 26, Lawson Software’s stock price dipped to $11.06 per share at market close. The merger became effective in July 2011.

Richard Lawson agreed to settle the SEC’s charges by paying a penalty of $1,557,384.57 for tipping his brother and Cerullo. The penalty amount is equivalent to the ill-gotten gains received by William Lawson and Cerullo. Richard Lawson also agreed to be barred from serving as an officer or director of a public company. William Lawson agreed to pay disgorgement of $1,853,671.28, prejudgment interest of $162,442.60, and a penalty of $1,853,671.28 for a total of $3,869,785.16. William Lawson’s disgorgement amount includes the ill-gotten gains of the other trader who he suggested sell shares. Cerullo agreed to pay disgorgement of $178,481.29, prejudgment interest of $15,640.81, and a penalty of $178,481.29 for a total of $372,603.39. Without admitting or denying the SEC’s allegations, the Lawsons and Cerullo agreed to the entry of final judgments enjoining them from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The settlement is subject to court approval.

The SEC’s investigation was conducted by Michael Fuchs and Wendy Kong, and supervised by Josh Felker. The SEC appreciates the assistance of the Options Regulatory Surveillance Authority and the Financial Industry Regulatory 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.

SEC FILES INSIDER TRADING CHARGES AGAINST FORMER NVIDIA CORP. ACCOUNTING MANAGER

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission filed insider trading charges against a former accounting manager at Nvidia Corp. who tipped a friend with confidential company information that set in motion a chain of tipping and illegal trading among a network of hedge fund traders who reaped millions of dollars in illicit gains.

The SEC alleges that Chris Choi of San Jose, Calif., tipped his friend Hyung Lim with nonpublic information about Nvidia’s financial performance in advance of the technology company’s quarterly earnings announcements in 2009 and 2010.  Lim relayed Choi’s information to a fellow poker player Danny Kuo, who was a hedge fund manager at Whittier Trust Company.  Kuo illegally traded on the inside information for his firm and passed it along to analysts at such other firms as Diamondback Capital Management, Level Global Investors LP, and Sigma Capital Management, which is an affiliate of S.A.C. Capital Advisors LP.  The analysts relayed Choi’s information to their portfolio managers who caused funds to conduct insider trading in Nvidia securities.

Choi, who agreed to settle the SEC’s charges, is the 45th defendant charged by the SEC in its ongoing investigation into the activities of expert networks.  The investigation has exposed widespread insider trading by investment professionals, hedge funds, and corporate insiders for illicit profits of approximately $430 million.  The SEC previously charged Choi’s tippees, including Lim as well as Kuo, Diamondback, and Level Global and Sigma Capital.  The expert networks investigation arose out of the SEC’s inquiry into Galleon Management and Raj Rajaratnam – a case in which the SEC has charged an additional 35 defendants whose insider trading generated illicit profits of more than $96 million.

“Insiders at public companies who are entrusted with confidential information are duty bound to protect it,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office.  “Choi violated that sacred duty by regularly tipping his friend with nonpublic financial data that hedge fund traders exploited for millions of dollars in illegal profits.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Choi’s illegal tips enabled hedge funds to reap approximately $16.5 million in illicit profits and avoided losses.  Choi routinely provided Lim with nonpublic information about Nvidia’s highly confidential calculations of its revenues, gross profit margins, and other financial metrics ahead of its quarterly earnings announcements.

The SEC’s complaint charges Choi with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933.  Choi has agreed to pay a $30,000 penalty and be barred from serving as an officer or director of a public company for five years.  Without admitting or denying the allegations, Choi 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, which is continuing, has been conducted by Stephen Larson and Daniel Marcus of the Enforcement Division’s Market Abuse Unit in New York along with Matthew Watkins, Diego Brucculeri, James D’Avino, and Neil Hendelman of the New York Regional Office.  The case has been supervised by Sanjay Wadhwa and Joseph G. Sansone, deputy chief of the Enforcement Division’s Market Abuse Unit.  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.

SEC CHARGES MAN WITH INSIDER TRADING AHEAD OF ORACLE'S ACQUISITION OF ACME PACKET INC.

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a Silicon Valley man with insider trading ahead of Oracle Corporation's acquisition of Acme Packet Inc. based on confidential details he learned from his wife, a finance manager at Oracle.

The SEC alleges that Tyrone Hawk of Los Gatos, Calif., violated a duty of trust by trading after he overheard work calls made by his wife, a finance manager at Oracle Corp., regarding her company's plan to acquire Acme Packet Inc. Hawk also had a conversation with his wife in which she informed him that there was a blackout window for trading Oracle securities because it was in the process of acquiring another company. According to the SEC's complaint, Hawk bought Acme Packet shares before the acquisition was announced in February 2013, and reaped approximately $150,000 by selling after the stock price rose 23 percent on the news. Without admitting or denying the allegations, Hawk agreed to pay more than $300,000 to settle the SEC's charges.

The SEC's complaint charges Hawk with violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Hawk has settled the SEC's charges without admitting or denying the allegations. He has agreed to the entry of a judgment enjoining him from future violations of the relevant provisions of the Exchange Act, and to pay disgorgement and prejudgment interest of $154,134.50, and an additional penalty equal to his profits of $151,480.00.

The SEC's investigation was conducted by Jennifer J. Lee under the supervision of Michael S. Dicke and Jina L. Choi of the San Francisco Regional Office. The SEC acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this matter.

SUMMARY JUDGEMENT GRANTED IN INSIDER TRADING CASE

FROM:  SECURITIES AND EXCHANGE COMMISSION 
SEC Granted Summary Judgment in Insider Trading Case Against John Kinnucan and His Expert Consulting Firm

The Securities and Exchange Commission announced that earlier today Judge Alison J. Nathan of the United States District Court for the Southern District of New York entered final judgments in the SEC's civil injunctive action against John Kinnucan and his Portland, Oregon-based expert consulting firm Broadband Research Corporation. The Court imposed judgments of $6,533,492.88 against each defendant on a joint and several basis, including disgorgement of $1,583,445.96 together with prejudgment interest of $199,790.14 and a civil penalty of $4,750,337.88. The defendants were also permanently enjoined from future violations of the Securities Exchange Act of 1934 and Rule 10b-5.

The charges against Kinnucan and Broadband stemmed from the SEC's ongoing investigation of insider trading involving expert networks. In a parallel criminal case, Kinnucan previously pled guilty to two counts of securities fraud and one count of conspiracy to commit securities fraud. Kinnucan is currently incarcerated in California.

In its complaint, filed on February 17, 2012, the SEC alleged that Kinnucan and Broadband claimed to be in the business of providing clients with legitimate research about publicly-traded technology companies, but instead routinely tipped clients with material nonpublic information that Kinnucan obtained from prohibited sources inside the companies. Clients then traded on the inside information. Portfolio managers and analysts at prominent hedge funds and investment advisers paid Kinnucan and Broadband significant consulting fees for the information that Kinnucan provided. Kinnucan in turn compensated his sources with cash, meals, ski trips and other vacations, and even befriended some sources to gain access to confidential information.

The SEC's complaint specifically alleged that in July 2010, Kinnucan obtained material nonpublic information from a source at F5 Networks Inc., a Seattle-based provider of networking technology. On the morning of July 2, Kinnucan learned that F5 had generated better-than-expected financial results for the third quarter of its 2010 fiscal year, with the public announcement scheduled for July 21. Within hours of learning the confidential details, Kinnucan had phone conversations or left messages with several clients to convey that F5's revenues would exceed market expectations. At least three clients — an analyst and two portfolio managers — caused trades at their respective investment advisory firms on the basis of Kinnucan's inside information. The insider trading resulted in profits or avoided losses of nearly $1.6 million, the amount that Kinnucan and Broadband have been ordered to disgorge.

MAN ACCUSED OF TRADING AHEAD OF BAD NEWS

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Charges Massachusetts Resident with Insider Trading

The Securities and Exchange Commission today charged David J. Cancian of Lexington, Massachusetts, with insider trading ahead of an April 5, 2011 announcement by Massachusetts-based American Superconductor Corporation that caused the company’s stock price to tumble 42%. Cancian made profits and avoided losses of over $46,000.  Cancian has agreed to pay a total of $97,843 in disgorgement of ill-gotten gains, prejudgment interest, and a civil penalty to settle the insider trading charges.

According to the SEC’s complaint, filed in federal district court in Boston, Cancian, while having drinks on April 1, 2011 with a friend who was a senior executive at the company, learned that American Superconductor’s stock price was likely to drop.  The next trading day, April 4, 2011, Cancian sold the majority of American Superconductor stock he owned and sold “covered call options” to offset losses on the stock he continued to hold.  On April 5, 2011, after the close of trading, American Superconductor announced that its financial results for its fourth quarter and fiscal year ended March 31, 2011 would be lower than expected due to a deteriorating relationship with its primary customer, Sinovel Wind Group Co., Ltd., of China.  American Superconductor’s stock price plummeted 42% the next day.  As a result of Cancian’s trading ahead of the company’s announcement of negative news, he made profits and avoided losses of $46,930.

Cancian has agreed to settle this case, without admitting or denying the allegations in the SEC’s complaint, by consenting to a judgment enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and ordering him to pay disgorgement of $46,930 (representing his ill-gotten gains) plus prejudgment interest of $3,983 and a civil penalty of $46,930.

The SEC’s investigation was conducted by Asita Obeyesekere, Michael Foster, and Kevin Kelcourse in the SEC’s Boston Regional Office.  The Commission acknowledges the assistance of the Options Regulatory Surveillance Authority and the Financial Industry Regulatory Authority in this matter.  The SEC’s investigation is ongoing.

STOCKBROKER, MANAGING CLERK AT LAW FIRM CHARGED WITH INSIDER TRADING

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a stockbroker and a managing clerk at a law firm with insider trading around more than a dozen mergers or other corporate transactions for illicit profits of $5.6 million during a four-year period.

The SEC alleges that Vladimir Eydelman and Steven Metro were linked through a mutual friend who acted as a middleman in the illegal trading scheme.  Metro, who works at Simpson Thacher & Bartlett in New York, obtained material nonpublic information about corporate clients involved in pending deals by accessing confidential documents in the law firm’s computer system.  Metro typically tipped the middleman during in-person meetings at a New York City coffee shop, and the middleman later met Eydelman, who was his stockbroker, near the clock and information booth in Grand Central Terminal.  The middleman tipped Eydelman, who was a registered representative at Oppenheimer and is now at Morgan Stanley, by showing him a post-it note or napkin with the relevant ticker symbol.  After the middleman chewed up and sometimes even ate the note or napkin, Eydelman went on to use the illicit tip to illegally trade on his own behalf as well as for family members, the middleman, and other customers.  The middleman allocated a portion of his profits for eventual payment back to Metro in exchange for the inside information.  Metro also personally traded in advance of at least two deals.

In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Metro, who lives in Katonah, N.Y., and Eydelman, who lives in Colts Neck, N.J.

“Law firms are sanctuaries for the confidential treatment of client information, and this scheme victimized not only a law firm but also its corporate clients and ultimately the investors in those companies,” said Daniel M. Hawke, chief of the SEC Enforcement Division’s Market Abuse Unit.  “We are continuing to combat serial insider trading schemes, particularly by law firm employees and other professionals who are entrusted with extremely sensitive market-moving information.”

According to the SEC’s complaint filed in U.S. District Court for the District of New Jersey, the insider trading scheme began in early February 2009 at a bar in New York City when Metro met the middleman and other friends for drinks.  When Metro and the middleman separated from the rest of their friends and began discussing stocks, the middleman expressed concern about his holdings in Sirius XM Radio and his fear that the company may go bankrupt.  Metro divulged that Liberty Media Corp. planned to invest more than $500 million in Sirius, and said he obtained this information by viewing documents at the law firm where he worked.  As a result, the middleman later called Eydelman and told him to buy additional shares of Sirius.  Eydelman expressed similar concern about Sirius’ struggling stock, but the middleman assured him that his reliable source was a friend who worked at a law firm.  Following the public announcement of the deal, whose news coverage noted that Simpson Thacher acted as legal counsel to Sirius, Eydelman acknowledged to the middleman, “Nice trade.”  The middleman told Metro following the announcement that he had set aside approximately $7,000 for Metro as a “thank you” for the information.  Instead of taking the money, Metro told the middleman to leave it in his brokerage account and invest it on Metro’s behalf based on confidential information that he planned to pass him in the future.

According to the SEC’s complaint, Metro tipped and Eydelman traded on inside information about 12 more companies as they settled into a routine to cloak their illegal activities.  Metro shared confidential nonpublic information with the middleman by typing on his cell phone screen the names or ticker symbols of the two companies involved in the transaction.  Metro pointed to the names or ticker symbols to indicate which company was the acquirer and which was being acquired.  Metro also conveyed the approximate price of the transaction and the approximate announcement date.  The middleman then communicated to Eydelman that they should meet.  Once at Grand Central Station, the middleman walked up to Eydelman and showed him the post-it note or napkin containing the ticker symbol of the company whose stock price was likely to increase as a result of the corporate transaction.  Eydelman watched the middleman chew or eat the tip to destroy the evidence.  Eydelman also learned from the middleman an approximate price of the transaction and an approximate announcement date.

The SEC alleges that Eydelman then returned to his office and typically gathered research about the target company.  He eventually e-mailed the research to the middleman along with his purported thoughts about why buying the stock made sense.  The contrived e-mails were intended to create what Eydelman and the middleman believed to be a sufficient paper trail with plausible justification for engaging in the transaction.

“People often try to cover their insider trading tracks by using middlemen, destroying evidence, and creating phony documents.  They should learn that sham cover stories simply don’t work and won’t deter us from finding their schemes,” said Robert A. Cohen, co-deputy chief of the SEC Enforcement Division’s Market Abuse Unit.

According to the SEC’s complaint, Eydelman also traded on inside information in the accounts of more than 50 of his brokerage customers.  Eydelman earned substantial commissions as a result of this trading, and received bonuses from his employers based on his performance driven in large part by the profits garnered through the insider trading scheme.  The middleman’s agreement with Metro resulted in more than $168,000 being apportioned to Metro as his share of profits from the insider trading scheme in addition to his profits from personally trading in advance of at least two transactions.

The SEC’s complaint charges Metro and Eydelman with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 as well as Section 17(a) of the Securities Act of 1933.  The complaint seeks a final judgment ordering Metro and Eydelman to pay disgorgement of their ill-gotten gains plus prejudgment interest and penalties, and permanent injunctions from future violations of these provisions of the federal securities laws.

The SEC’s investigation, which is continuing, has been conducted by Jason Burt and Carolyn Welshhans in the Market Abuse Unit.  John Rymas, Mathew Wong, Daniel Koster, and Leigh Barrett assisted with the investigation.  The case was supervised by Mr. Hawke and Mr. Cohen.  The SEC’s litigation will be led by Stephan Schlegelmilch and Bridget Fitzpatrick.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey, Federal Bureau of Investigation, Financial Industry Regulatory Authority, and Options Regulatory Surveillance Authority.

LAW FIRM, OTHERS CHARGED IN $5.6 MILLION FOR ROELS IN INSIDER TRADING SCHEME

FROM:  SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Law Firm Managing Clerk and Stockbroker in $5.6 Million Insider Trading Scheme

The Securities and Exchange Commission today charged a managing clerk at a law firm and a stockbroker with insider trading around more than a dozen mergers or other corporate transactions for illicit profits of $5.6 million during a four-year period.

The SEC alleges that Steven Metro and Vladimir Eydelman were linked through a mutual friend who acted as a middleman in the illegal trading scheme. Metro, a managing clerk at Simpson Thacher & Bartlett in New York, obtained material nonpublic information about corporate clients involved in pending deals by accessing confidential documents in the law firm's computer system. Metro typically tipped the middleman during in-person meetings at a New York City coffee shop, and the middleman later met with his stockbroker, Eydelman, near the clock at the information booth in Grand Central Station. The middleman tipped Eydelman, who was a registered representative at Oppenheimer and is now at Morgan Stanley, by showing him a post-it note or napkin with the relevant ticker symbol. After the middleman chewed up and sometimes even ate the note or napkin, Eydelman went on to use the illicit tip to illegally trade on his own behalf as well as for family members, the middleman, and other customers. Eydelman bolstered his unlawful profits with commissions from those trades. The middleman allocated a portion of his ill-gotten profits for eventual payment back to Metro in exchange for the inside information. Metro also personally traded in advance of at least two deals.

In a parallel action, the U.S. Attorney's Office for the District of New Jersey today announced criminal charges against Metro, who lives in Katonah, N.Y., and Eydelman, who lives in Colts Neck, N.J.

According to the SEC's complaint filed in U.S. District Court for the District of New Jersey, the scheme began in early February 2009 at a bar in New York City when Metro met the middleman and other friends for drinks. When Metro and the middleman separated from the rest of their friends and began discussing stocks, the middleman expressed concern about his holdings in Sirius XM Radio and his fear that the company may go bankrupt. Metro divulged that Liberty Media Corp. planned to invest more than $500 million in Sirius, and said he obtained this information by viewing documents at the law firm where he worked. As a result, the middleman later called Eydelman and told him to buy additional shares of Sirius. Eydelman expressed similar concern about Sirius' struggling stock, but the middleman assured him that his reliable source was a friend who worked at a law firm. Following the public announcement of the deal, whose news coverage noted that Simpson Thacher acted as legal counsel to Sirius, Eydelman acknowledged to the middleman, "Nice trade." The middleman told Metro following the announcement that he had set aside approximately $7,000 for Metro as a "thank you" for the information. Instead of taking the money, Metro told the middleman to leave it in his brokerage account and invest it on Metro's behalf based on confidential information that he planned to pass him in the future.

According to the SEC's complaint, Metro tipped and Eydelman traded on inside information about 12 more companies as they settled into a routine to cloak their illegal activities. Metro shared confidential nonpublic information with the middleman by typing on his cell phone screen the names or ticker symbols of the two companies involved in the transaction. Metro pointed to the names or ticker symbols to indicate which company was the acquirer and which was being acquired. Metro also conveyed the approximate price of the transaction and the approximate announcement date. The middleman then communicated to Eydelman that they should meet. Once at Grand Central Station, the middleman walked up to Eydelman and showed him the post-it note or napkin containing the ticker symbol of the company whose stock price was likely to increase as a result of the corporate transaction. Eydelman watched the middleman chew or eat the tip to destroy the evidence. Eydelman also learned from the middleman an approximate price of the transaction and an approximate announcement date.

The SEC alleges that Eydelman then returned to his office and typically gathered research about the target company. He eventually e-mailed the research to the middleman along with his purported thoughts about why buying the stock made sense. The contrived e-mails were intended to create what Eydelman and the middleman believed to be a sufficient paper trail with plausible justification for engaging in the transaction.

The SEC's complaint charges Metro and Eydelman with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 as well as Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment ordering Metro and Eydelman to pay disgorgement of their ill-gotten gains plus prejudgment interest and penalties, and permanent injunctions from future violations of these provisions of the federal securities laws.

The SEC's investigation, which is continuing, has been conducted by Jason Burt and Carolyn Welshhans in the Market Abuse Unit. John Rymas, Mathew Wong, Daniel Koster, and Leigh Barrett assisted with the investigation. The case was supervised by Mr. Hawke and Mr. Cohen. The SEC's litigation will be led by Stephan Schlegelmilch and Bridget Fitzpatrick. The SEC appreciates the assistance of the U.S. Attorney's Office for the District of New Jersey, Federal Bureau of Investigation, Financial Industry Regulatory Authority, and Options Regulatory Surveillance Authority.

SEC CHARGES FORMER ANALYST OF INSIDER TRADING

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged a former analyst at an affiliate of hedge fund advisory firm S.A.C. Capital Advisors with insider trading based on nonpublic information that he obtained about a pair of technology companies.

The SEC alleges that Ronald N. Dennis got illegal tips from two friends who were fellow hedge fund analysts.  They provided him confidential details about impending announcements at Dell Inc. and Foundry Networks.  Armed with inside information, Dennis prompted illegal trades in Dell and Foundry stock and enabled hedge funds managed by S.A.C. Capital and affiliate CR Intrinsic Investors to generate illegal profits and avoid significant losses.

Dennis, who lives in Fort Worth, Texas, has agreed to be barred from the securities industry and pay more than $200,000 to settle the SEC’s charges.

“Like several others before him at S.A.C. Capital and its affiliates, Dennis violated the insider trading laws when he exploited confidential information about public companies, in this case Dell and Foundry, to unjustly benefit the firms and enrich himself,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office.  “His actions have cost him the privilege of working in the hedge fund industry ever again.”

According to the SEC’s complaint filed in federal court in Manhattan, Dennis received illegal tips about Dell’s financial performance from Jesse Tortora, who was then an analyst at Diamondback Capital.  Tortora and Diamondback were charged in 2012 along with several other hedge fund managers and analysts as part of the SEC’s broader investigation into expert networks and the trading activities of hedge funds.  Dennis separately received an illegal tip about the impending acquisition of Foundry from Matthew Teeple, an analyst at a San Francisco-based hedge fund advisory firm.  The SEC charged Teeple and two others last year for insider trading in Foundry stock.

The SEC alleges that Dennis caused CR Intrinsic and S.A.C. Capital to trade Dell securities based on nonpublic information in advance of at least two quarterly earnings announcements in 2008 and 2009.  Dennis obtained confidential details from Tortora, who had obtained the information from a friend who communicated with a Dell insider.  Dennis enabled hedge funds managed by CR Intrinsic and S.A.C. Capital to generate approximately $3.2 million in profits and avoided losses in Dell stock.  Within minutes after one of the Dell announcements, Tortora sent an instant message to Dennis saying “your welcome.”  Dennis responded “you da man!!! I owe you.”

The SEC’s complaint also alleges Dennis was informed by Teeple in July 2008 about Foundry’s impending acquisition by another technology company.  Shortly after receiving the inside information, Dennis caused a CR Intrinsic hedge fund to purchase Foundry stock and generate approximately $550,000 in profits when the news became public.

The SEC’s complaint charges Dennis with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933.  Dennis has agreed to pay $95,351 in disgorgement, $12,632.34 in prejudgment interest, and a $95,351 penalty.  Without admitting or denying the allegations, Dennis also has agreed to be permanently enjoined from future violations of these provisions of the federal securities laws.  The settlement is subject to court approval.  He would then be barred from associating with an investment adviser, broker, dealer, municipal securities dealer, or transfer agent in a related administrative proceeding.

The SEC’s investigation, which is continuing, has been conducted by Michael Holland, Daniel Marcus, and Joseph Sansone of the Enforcement Division’s Market Abuse Unit in New York and Matthew Watkins, Diego Brucculeri, James D’Avino, and Neil Hendelman of the New York Regional Office.  The case has been supervised by Sanjay Wadhwa.  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.

MAN TO PAY DISGORGEMENT AND PENALTY TO SETTLE INSIDER TRADING CHARGES

FROM:  SECURITIES AND EXCHANGE COMMISSION 

On February 6, 2014, the Securities and Exchange Commission filed insider trading charges against Hao He a/k/a Jimmy He alleging He purchased short-term put option contracts in the securities of Sina Corporation ("Sina"), a foreign private issuer headquartered in Shanghai, China.

The SEC's complaint, filed in the federal district court in Atlanta, Georgia, alleges that He, between October 10, 2012 and November 13, 2012, obtained material nonpublic information concerning Sina's upcoming, negative, future earnings guidance while visiting China and/or through phone calls to China. Based on this information, He purchased approximately $162,000 in short-term put options on November 13 and November 14, 2012, which contracts expired on November 17, 2012. Given the cost and nature of those trades, Sina's stock had to decline within a short time frame in order for He's trades to be profitable.

On November 15, 2012, Sina issued an announcement noting that it had beaten analyst forecasts for third quarter earnings, but also announced unexpected negative guidance for the fourth quarter of 2012. As a result of this negative guidance, analysts downgraded the stock and, upon opening on November 16, 2012, Sina's stock price declined approximately 8.5%, opening at $48.60 compared to the previous day's close of $53.10, and ultimately closed at $45.06.

Following the announcement and decline in the stock price, He sold all of his put option contracts on November 16, 2012 for $331,530.83, generating illicit profits of $169,819.10.

The SEC's complaint alleges that He violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

He has consented, without admitting or denying the Commission's allegations, to the entry of a final judgment permanently enjoining him from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and requiring him to pay $169,819.10 in disgorgement plus prejudgment interest of $6,155.36, and a penalty of $169,819.10. The settlement with He is subject to court approval.

The SEC's investigation was conducted by Grant Mogan and Peter Diskin of the Atlanta Regional Office.

FORMER EXECUTIVE SENTENCED FOR ROLE IN INSIDER TRADING CASE

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Former Executive of Massachusetts-Based Company Sentenced in Insider Trading Case

The Commission announced today that, on January 21, 2014, Joseph M. Tocci, was sentenced for insider trading in the securities of Massachusetts-based American Superconductor Corporation.  The criminal charges against Tocci arose out of the same conduct for which the Commission filed a securities fraud action against Tocci in 2013.  Tocci pled guilty to the charges of insider trading on August 29, 2013.

According to the criminal information filed on August 12, 2013, Tocci, a former assistant treasurer of American Superconductor, learned in a call on or about March 31, 2011 with American Superconductor’s chief financial officer that the company’s primary customer, Sinovel Wind Group Co. Ltd., would not make past due payments and would not accept shipments scheduled for the end of the quarter on March 31, 2011.  The criminal information further stated that following the call and discussions with other members of the finance staff, Tocci knew that American Superconductor’s actual financial results for fiscal year 2010 (ended March 31, 2011) would likely be well below analysts’ expectations for the company.  According to the information, Tocci knew that he was not allowed to trade in American Superconductor shares based on material, nonpublic information about the company.  However, on April 1, 2011, while in possession of material, nonpublic information concerning Sinovel, he purchased 100 American Superconductor put option contracts.  In the context of stock transactions, a “put option” is the right to sell a particular stock at a certain price (the “strike price”) by a certain date (“expiration date”).  For the put options that Tocci purchased, if American Superconductor’s stock price declined significantly before May 21, 2011, Tocci stood to profit from the put option contracts.  On April 5, 2011, American Superconductor made a public announcement that Sinovel had refused to accept scheduled shipments and that the company expected Sinovel to reduce its level of inventory before accepting further shipments and that American Superconductor expected its revenues for the fourth quarter and/or fiscal year 2010 (ended March 31, 2011), and its expected earnings, to be substantially below prior forecasts.  On April 6, 2011, American Superconductor’s stock price dropped 42%, closing at $14.47 per share.  Tocci sold his put options for $95,092.37, earning a profit of approximately $82,440.  Tocci was sentenced to one year probation, a $100 fine, and was required to continue to pay disgorgement, prejudgment interest, and civil penalties he previously agreed to with the Commission.

In a parallel Complaint filed on August 12, 2013, in the U.S. District Court for the District of Massachusetts in Boston, the SEC alleges that Tocci, age 59, of Belmont, Massachusetts, used confidential information he obtained as the assistant treasurer of American Superconductor to purchase option contracts through which Tocci essentially bet that the company’s stock price would soon decrease on the release of negative news.  Tocci agreed to settle this case by consenting to a judgment enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and ordering him to pay disgorgement of $82,439 (representing his ill-gotten gains) plus prejudgment interest of $6,109 and a civil penalty of $82,439.

The SEC’s investigation was conducted by Asita Obeyesekere, Michael Foster, and Kevin Kelcourse in the SEC’s Boston Regional Office.  The Commission acknowledges the assistance and cooperation of the U.S. Attorney’s Office for the District of Massachusetts and the Federal Bureau of Investigation’s Boston Field Office.  The Commission also thanks the Options Regulatory Surveillance Authority and the Financial Industry Regulatory Authority for their assistance.

BURGER KING STOCK INSIDE TRADER ORDERED TO PAY $5.6 MILLION

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Former Stockbroker Ordered to Pay $5.6 Million for Insider Trader in Burger King Stock

The Securities and Exchange Commission obtained a final judgment against a former registered representative who misappropriated material nonpublic information from his customer and used it to trade Burger King Holding, Inc.'s ("Burger King") securities and tip others before the company's September 2, 2010 announcement that it was being acquired by a New York private equity firm.

On January 7, 2014, the SEC obtained a final judgment against Waldyr Da Silva Prado Neto ("Prado"), a citizen of Brazil formerly employed by Wells Fargo Advisors, LLC in Miami. Prado learned about the impending acquisition from one of his customers who invested in a fund managed by the private equity firm that was used to acquire Burger King. Prado misused the confidential information to illegally trade in Burger King securities for $175,000 in illicit profits, and he tipped others living in Brazil and elsewhere.

The final judgment entered by the U.S. District Court for the Southern District of New York on the SEC's motion for a default judgment, permanently enjoins Prado from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The judgment orders Prado to disgorge $397,110 in ill-gotten gains from the illegal Burger King trading plus prejudgment interest of $41,622. Prado is also ordered to pay $5,195,500 in penalties.

MICROSOFT SENIOR MANAGER CHARGED BY SEC WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Microsoft Senior Manager and Friend with Insider Trading in Advance of Company News

The Securities and Exchange Commission announced that, on December 19, 2013, it charged a senior portfolio manager at Microsoft Corporation and his friend and business partner with insider trading ahead of company announcements.

The SEC alleges that Brian D. Jorgenson, who lives in Lynwood, Wash., obtained confidential information about upcoming company news through his work in Microsoft's corporate finance and investments division. Jorgenson tipped Sean T. Stokke of Seattle in advance of the Microsoft announcements, the most recent occurring in October. After Stokke traded on the inside information that Jorgenson provided, the two equally split the illicit profits in their shared brokerage accounts. They made joint trading decisions with the goal of generating enough profits to create their own hedge fund.

In a parallel action, the U.S. Attorney's Office for the Western District of Washington announced criminal charges against Jorgenson and Stokke.

According to the SEC's complaint filed in U.S. District Court for the Western District of Washington, Jorgenson and Stokke made a combined $393,125 in illicit profits in their scheme, which began in April 2012.

The SEC alleges that Stokke first traded in advance of a public announcement that Microsoft intended to invest $300 million in Barnes & Noble's e-reader business. Jorgenson learned of the impending transaction after his department became involved in the financing aspects of the deal. Jorgenson tipped Stokke so he could purchase approximately $14,000 worth of call options on Barnes & Noble common stock. Following a joint public announcement on April 30, 2012, Barnes & Noble's stock price closed at $20.75 per share, a 51.68 percent increase from the previous day. Jorgenson and Stokke made nearly $185,000 in ill-gotten trading profits.

The SEC alleges that Stokke later traded in advance of Microsoft's fourth-quarter earnings announcement in July 2013. As part of his duties at Microsoft, Jorgenson prepared a written analysis of how the market would react to the negative news that Microsoft's fourth quarter earnings were more than 11 percent below consensus estimates. He estimated that Microsoft's stock price would decline by at least six percent. Jorgenson tipped this confidential information to Stokke, who purchased almost $50,000 worth of Microsoft options. After Microsoft's announcement on July 18, its stock price declined more than 11 percent the next day from $35.44 to $31.40 per share. Jorgenson and Stokke realized more than $195,000 in illicit profits.

According to the SEC's complaint, Stokke traded in advance of another Microsoft announcement on Oct. 24, 2013. Jorgenson was aware that the company would be announcing first quarter 2014 earnings that were more than 14 percent higher than consensus estimates. Rather than purchase Microsoft securities directly, Jorgenson and Stokke purchased more than $45,000 worth of call options on an exchange-traded fund in which Microsoft comprised more than eight percent of the fund's holdings. Following the announcement, Microsoft's share price increased nearly six percent and the price of the ETF increased 0.51 percent. Jorgenson and Stokke made approximately $13,000 in illegal trading profits.

Jorgenson and Stokke are charged with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, both directly and pursuant to Section 20(d) of the Exchange Act. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and financial penalties against Jorgenson and Stokke as well as an officer-and-director bar against Jorgenson.

The SEC's investigation was conducted by Brendan P. McGlynn, Patricia A. Paw, John S. Rymas, and Daniel L. Koster of the Philadelphia Regional Office. The SEC's litigation will be led by John V. Donnelly and G. Jeffery Boujoukos.

The SEC appreciates the assistance of the U.S. Attorney's Office for the Western District of Washington, Federal Bureau of Investigation, Options Regulatory Surveillance Authority, and Financial Industry Regulatory Authority.

FORMER SAP EMPLOYEE CHARGE BY SEC WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Former SAP Employee with Insider Trading

The Securities and Exchange Commission announced that, on December 23, 2013, it charged David F. Marchand, of Campbell, California, a former Board Assistant to the Co-Chief Executive Officer of SAP AG, with unlawful insider trading in the securities of three issuers: SuccessFactors, Inc. (“SuccessFactors”), Ariba, Inc. (“Ariba”) and SAP AG (“SAP”). According to the SEC’s complaint filed in the U.S. District Court for the District of New Jersey, Marchand made a total of $43,500 in illicit profits through his trading.

The SEC’s complaint alleges that, while in possession of material nonpublic information concerning SAP’s intention to acquire SuccessFactors, Marchand purchased SuccessFactors common stock between November 21, 2011 and November 28, 2011, in advance of the December 3, 2011 public announcement that SAP and SuccessFactors had entered into a merger agreement pursuant to which a subsidiary of SAP would acquire SuccessFactors for $40 per share in a tender offer. The price of SuccessFactors common stock increased 51.4 percent after the announcement, and Marchand sold his shares, realizing illicit profits of $28,061.

The complaint further alleges that, in early January 2012, Marchand became aware of material nonpublic information regarding SAP’s favorable financial performance for the fourth quarter and year ended 2011, including its “best ever” software revenue numbers. After learning this information, Marchand purchased SAP American Depositary Receipts (ADRs) prior to SAP’s January 13, 2012 public release of its preliminary fourth quarter 2011 results. Marchand sold his SAP ADRs after the announcement, realizing illicit profits of $2,157.

The SEC also alleges that, a few months later, after he learned material nonpublic information about SAP’s intentions to acquire Ariba, Marchand purchased Ariba common stock on April 16, 2012, May 2, 2012 and May 8, 2012, in advance of the May 22, 2012 public announcement that a subsidiary of SAP and Ariba had entered into a merger agreement pursuant to which a subsidiary of SAP would acquire Ariba for $45 per share of common stock. The price of Ariba common stock increased approximately 19 percent after the announcement, and Marchand sold his Ariba shares, realizing illegal profits of $13,282.

Marchand has consented, without admitting or denying the SEC’s allegations, to the entry of a final judgment permanently enjoining him from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder; requiring him to pay $43,500 in disgorgement, $2,155 in prejudgment interest, and a penalty of $43,500. The settlement is subject to court approval.

The SEC’s ongoing investigation is being conducted by Brendan P. McGlynn, Oreste P. McClung and Daniel L. Koster of the Philadelphia Regional Office. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC CHARGES FORMER EMPLOYEE OF SEMICONDUCTOR COMPANY WITH TIPPING NONPUBLIC INFORMATION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged a former employee at a Silicon Valley-based semiconductor company for his role tipping nonpublic information used in connection with Raj Rajaratnam’s massive insider trading scheme.

The SEC alleges that Sam Miri, who worked in the communications division at Marvell Technology Group, tipped confidential information about the company’s financial performance to former Galleon Management portfolio manager Ali Far.  He used the nonpublic information provided by Miri to trade Marvell securities on behalf of hedge funds that he founded after leaving Galleon.  Far and Spherix Capital, who were among those earlier charged by the SEC in the Galleon matter, earned hundreds of thousands of dollars in illicit profits based on Miri’s tips.  In exchange for the illegal tips, Far arranged four quarterly payments to Miri totaling approximately $10,000.

Miri, who lives in Palo Alto, Calif., has agreed to settle the SEC’s charges by paying more than $60,000 and being barred from serving as an officer or director of a public company.

“Miri finds himself playing the role of defendant because he chose to violate his duty to protect his employer’s confidential information by selling it to a hedge fund manager in exchange for quarterly payments,” said Sanjay Wadhwa, senior associate director for enforcement in the SEC’s New York Regional Office.  “A total of 35 firms and individuals have now been held accountable for their varying roles in the Galleon scheme.”

According to the SEC’s complaint filed in federal court in Manhattan, Miri tipped Far in May 2008 with inside information about Marvell’s plans to announce a permanent chief financial officer after a string of interim chief financial officers.  With an earnings announcement scheduled for later that month, Miri also revealed confidential information about Marvell’s sales revenue and profitability as well as projections of future earnings potential.  In the days leading up to the announcement, Spherix Capital hedge funds purchased approximately 300,000 shares of Marvell common stock.  When the stock climbed more than 20 percent after Marvell announced its quarterly financial results and new CFO on May 29, Far’s hedge funds reaped approximately $680,000 in ill-gotten gains.

The SEC’s complaint charges Miri with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Miri agreed to pay $10,000 in disgorgement, $1,842.90 in prejudgment interest, and a $50,000 penalty.  Miri also agreed to be barred from serving as an officer or director of a public company for five years.  Without admitting or denying the charges, Miri 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, which is continuing, has been conducted by John Henderson, Diego Brucculeri, and James D’Avino of the New York Regional Office.  The case has been supervised by Joseph Sansone of the Market Abuse Unit and Sanjay Wadhwa.  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.

SEC ANNOUNCES INVESTMENT PROFESSIONAL CHARGED WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced insider trading charges against a New York-based investment professional who used nonpublic information about youth clothing company Carter’s Inc. to give the hedge fund where he worked a $3.2 million trading edge.

The SEC alleges that Mark Megalli obtained the inside information through a consulting agreement he had with the former vice president of investor relations at Carter’s, Eric Martin, who the SEC has previously charged among several others in its investigation into insider trading of Carter’s stock.  Martin, who had left Carter’s and started his own consulting firm, maintained contact with at least one company insider and obtained confidential information in advance of market-moving events that he supplied to Megalli so he could trade on it.  Megalli enabled hedge fund Level Global Investors L.P. to avoid approximately $2.4 million in losses and make $853,655 in illicit profits by trading shares ahead of positive or negative news.

“The information was hot enough that Megalli sometimes conducted the trades while he was still on the phone with his source,” said William Hicks, associate regional director of the SEC’s Atlanta Regional Office.  “After one profitable trade, Megalli bragged to his colleagues about being ‘max short’ in advance of negative news without mentioning his inside source.”

In a parallel action, the U.S. Attorney’s Office for the Northern District of Georgia today announced a criminal case against Megalli.

According to the SEC’s complaint filed in U.S. District Court for the Northern District of Georgia, Megalli joined Level Global as head of its consumer sector in August 2009 and entered into the consulting agreement with Martin’s firm a month later.  Martin began providing Megalli with confidential information about Carter’s anticipated financial results on the same day the consulting agreement was executed, and Megalli began directing and causing Level Global to trade on that nonpublic information.

The SEC’s complaint alleges that Megalli directed the purchase of 350,000 shares of Carter’s stock from September 14 to 17 based on explicit positive earnings information that he received from Martin.  Megalli’s very first trade in Carter’s shares occurred while he was on the phone with Martin.  On October 23, Martin advised Megalli about an unexpected accounting issue that was uncovered at Carter’s.  While still on the phone with Martin, Megalli immediately ordered the sale of 100,000 shares and instructed Level Global’s trader to continue selling the firm’s entire position in Carter’s.  After Level Global sold its entire position, Carter’s announced on October 27 that it was delaying its earnings release to complete a review of its accounting.  By selling shares prior to the negative announcement, Level Global avoided losses of more than $2.1 million.

The SEC alleges that Megalli also traded ahead of negative news based on nonpublic information from Martin to avoid losses of $268,500 in November 2009.  Megalli’s trading earned illicit profits of $205,000 in December 2009.  During a telephone conversation on July 8, 2010, Martin tipped Megalli that Carter’s earnings for the quarter would be below expectations.  Megalli immediately caused Level Global to begin accumulating a short position in Carter’s, and built up the short position to 300,000 shares by July 19.  Carter’s issued an earnings release on July 29 that contained negative future guidance, and its stock subsequently declined in price.  Level Global covered its entire short position at the lower price, generating profits of $648,655.  After the trading, Megalli boasted to colleagues in instant messages about the “max short” on Carter’s before the negative announcement.  He received hearty congratulations from his colleagues.

The SEC’s complaint charges Megalli with violating the antifraud provisions of the federal securities laws, and seeks a permanent injunction, disgorgement with prejudgment interest, and financial penalties.

The SEC’s investigation, which is continuing, has been conducted in the Atlanta Regional Office by Grant Mogan under the supervision of Peter J. Diskin.  The litigation will be led by Graham Loomis and Pat Huddleston.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Northern District of Georgia and the Financial Industry Regulatory Authority.

Among the other individuals who the SEC has charged in connection with its investigation of insider trading and financial fraud at Carter’s were the company’s former executive vice president Joseph Elles, former president Joseph Pacifico, and a divisional merchandise manager at Kohl’s named Michael Johnson who handled that store’s account with Carter’s.  The SEC entered a non-prosecution agreement with Carter’s in return for the company’s extensive cooperation with the SEC’s investigation.

SEC CHARGES NY MAN WITH INSIDER TRADING

FROM:  U.S. SECURITIES EXCHANGE COMMISSION 
SEC Charges New York Investment Professional with Insider Trading

On October 29, 2013, the Securities and Exchange Commission filed a civil injunctive action in federal court in the Northern District of Georgia against Dennis Rosenberg ("Rosenberg"). The Commission alleges that Rosenberg traded in the securities of Carter's Inc., ("Carter's), the Atlanta-based public issuer and clothing marketer, on the basis of material non-public information provided by a former Carter's executive, and tipped two investment advisers about this information.

The Commission's complaint alleges that, between 2005 and 2010, Rosenberg, a retired hedge fund investment consultant and market analyst who had previously covered the stock of Carter's, traded in advance of market-moving news concerning Carter's anticipated earnings, after having been tipped by a former Carter's executive regarding the substance of the upcoming announcements. Rosenberg also disclosed this information to two investment advisers for two separate hedge funds, according to the complaint, who then also traded on the inside information. Rosenberg's total ill-gotten gains, losses avoided, and consulting fees (based on tips to one hedge fund client) totaled approximately $500,000, according to the complaint, while the combined losses avoided and profits by Rosenberg's tippees totaled approximately $2 million.

The Commission's complaint alleges that Rosenberg violated the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5. Without admitting or denying any of the allegations in the complaint, Rosenberg consented to the entry of an order enjoining him from future violations of these provisions, and ordering him to disgorge approximately $500,000 of ill-gotten gains and approximately $108,000 in prejudgment interest. The amount of civil monetary penalties to be imposed, if any, will be decided at a later date.

This is the second insider trading case that the Commission has brought in connection with its ongoing investigation of trading in the securities of Carter's, see SEC v. Eric Martin, et al.,http://www.sec.gov/litigation/litreleases/2012/lr22458.htm, and the Commission's fifth overall case as part of its broader Carter's investigation.See SEC v. Joseph Elles,http://www.sec.gov/litigation/litreleases/2010/lr21784.htm, SEC v. Joseph Pacifico, Http://www.sec.gov/litigation/litreleases/2012/lr22517.htm, SEC v. Michael Johnson,http://www.sec.gov/litigation/litreleases/2012/lr22520.htm.
The SEC acknowledges the assistance of the U.S. Attorney's Office for the Northern District of Georgia and the Federal Bureau of Investigation in this matter.
 SEC Complaint

MARK CUBAN FOUND NOT LIABLE FOR INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Jury Finds Mark Cuban Not Liable for Insider Trading

On October 16, 2013, after a three-week trial, a nine-person federal jury found Mark Cuban not liable for insider trading. On November 17, 2008, the Commission filed a Complaint against Cuban alleging that he engaged in insider trading in securities issued by Mamma.com in violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.