SEC ALLEGES GIRLFRIEND’S INFO NETS CALIFORNIA MAN 3000 PROFIT IN DISNEY-MARVEL DEAL

The following excerpt is from the SEC website: Washington, D.C., Aug. 11, 2011 — The Securities and Exchange Commission today charged a California man with insider trading for a 3000 percent profit based on confidential information that he learned from his girlfriend prior to Walt Disney Company’s acquisition of Marvel Entertainment. The SEC alleges that Toby G. Scammell, who worked at an investment fund at the time, purchased highly speculative Marvel call options beginning in mid-August 2009. He secretly used money in his brother’s accounts over which he had been given control when his brother was deployed to serve in Iraq a few years earlier. Just before Scammell purchased many of the Marvel securities, he searched the Internet for such terms as “insider trading,” “material, non-public information,” and “Rule 10b-5.” According to the SEC’s complaint filed in U.S. District Court for the Central District of California, Scammell’s girlfriend worked on the Marvel acquisition as an extern in Disney’s corporate strategy department, and she possessed confidential details about the pricing and timing of the deal. Scammell illegally traded on this non-public information in breach of his duty of trust and confidence to his girlfriend. Marvel’s stock price jumped more than 25 percent after the Aug. 31, 2009, public announcement, and Scammell then sold all of his Marvel options. He didn’t reveal his trades or profits to his brother or his girlfriend. “Scammell exploited his romantic relationship for a financial windfall. His misuse of confidential information gave him an unfair and illegal edge over other traders in the markets,” said Rosalind R. Tyson, Director of the SEC’s Los Angeles Regional Office.‬‪ According to the SEC’s complaint, Scammell and his girlfriend often discussed her work projects at Disney. Scammell lived with his girlfriend in her Los Angeles apartment in late July 2009 when the Marvel deal heated up at Disney and his girlfriend was assigned to work on it. She explained to Scammell in an e-mail that she could not tell him the name of the company involved because of “confidentiality,” but she noted that “it’s very recognizable and nothing I’ve mentioned before.” According to the SEC’s complaint, Scammell and his girlfriend had multiple discussions about whether she should delay her business school applications so that she could write about the high-profile acquisition she was working on at Disney as part of her business school applications. She worked long hours on the Marvel acquisition — sometimes from home — in the five weeks leading up to the deal. She received detailed information about the anticipated acquisition including the $50 per share acquisition price. Scammell had access and the password to his girlfriend’s Blackberry on occasion. The SEC alleges that Scammell obtained the identity of the acquisition target from his girlfriend by overhearing one or more of her Marvel-related conversations, seeing electronic or paper documents in her possession related to the Marvel acquisition, or through his own work-related conversations with her. For instance, when Scammell’s girlfriend learned that the acquisition would be announced by Labor Day, she informed him the timing of the announcement would allow them to attend her friend’s wedding. It was around this time that Scammell began searching the Internet regarding call options. According to the SEC’s complaint, Scammell had never before traded in Marvel securities, and had only one previous experience trading call options that was unsuccessful. In the weeks leading up to the Disney-Marvel announcement, Scammell made several purchases totaling more than $5,400 in Marvel call options with remarkable strike prices of $50 and $45 even though Marvel had never traded above $41.74. Most of the Marvel options that Scammell purchased were set to expire on September 19, just weeks after the announcement. Scammell’s trades were so unusual that his purchase of options represented 100 percent of the market in many instances. After the public announcement that Marvel would be acquired by Disney, Scammell sold his Marvel options for a profit of more than $192,000 — a 3000 percent return in less than a month. The SEC’s complaint alleges that Scammell had limited personal funds at the time, so he secretly used his older brother’s money to buy the majority of the Marvel call options. Scammell had obtained trading authority over his brother’s account when he was deployed to serve in Iraq with the U.S. Army. Scammell never told his brother that he had invested his money in Marvel or that his brother’s account had increased by more than $100,000 in less than one month as a result of the Marvel trades. The SEC’s complaint alleges that Scammell, who now lives in Greenbrae, Calif., violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks a permanent injunction, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties. The SEC’s investigation was conducted by Teri M. Melson in the Los Angeles Regional Office, and the litigation effort will be led by Spencer E. Bendell. The SEC appreciates the assistance of the Options Regulatory Surveillance Authority. The SEC’s investigation is ongoing.‬‪ ‬‪‬‪

SEC CHARGES DELOITTE TAX LLP PARTNER IN INSIDER TRADING SCHEME

Too often people have the misconception that those who are extremely rich made their fortunes by building “a better mouse trap”. In fact, after watching all these fantastical frauds which are only now being exposed by the SEC it might seem that most people who make vast fortunes make their money through some sort of fraudulent scheme. The following release from the SEC goes into depth regarding a family of alleged fraudsters who use a legitimate position in a legitimate company to swindle honest investors out of their hard earned savings. The following is an excerpt from the SEC web page:

“SEC Charges Deloitte Partner and Wife in International Insider Trading Scheme
FOR IMMEDIATE RELEASE
2010-234
Nov. 30, 2010 — The Securities and Exchange Commission today charged a former Deloitte Tax LLP partner and his wife with repeatedly leaking confidential merger and acquisition information to family members overseas in a multi-million dollar insider trading scheme.

The SEC alleges that Arnold McClellan and his wife Annabel, who live in San Francisco, provided advance notice of at least seven confidential acquisitions planned by Deloitte's clients to Annabel's sister and brother-in-law in London. After receiving the illegal tips, the brother-in-law took financial positions in U.S. companies that were targets of acquisitions by Arnold McClellan's clients. His subsequent trades were closely timed with telephone calls between Annabel McClellan and her sister, and with in-person visits with the McClellans. Their insider trading reaped illegal profits of approximately $3 million in U.S. dollars, half of which was to be funneled back to Annabel McClellan.
The UK Financial Services Authority (FSA) has announced charges against the two relatives — James and Miranda Sanders of London. The FSA also charged colleagues of James Sanders whom he tipped with the nonpublic information in the course of his work at his London-based derivatives firm. Sanders's tippees and clients made approximately $20 million in U.S. dollars by trading on the inside information.
"The McClellans might have thought that they could conceal their illegal scheme by having close relatives make illegal trades offshore. They were wrong," said Robert Khuzami, Director of the SEC's Division of Enforcement. "In this day and age, whether it's across oceans or across markets, the SEC and its domestic and foreign law enforcement partners are committed to identifying and prosecuting illegal insider trading."
Marc J. Fagel, Director of the SEC's San Francisco Regional Office, added, "Deloitte and its clients entrusted Arnold McClellan with highly confidential information. Along with his wife, he abused that trust and used high-placed access to corporate secrets for the couple's own benefit and their family's enrichment."
According to the SEC's complaint, Arnold McClellan had access to highly confidential information while serving as the head of one of Deloitte's regional mergers and acquisitions teams. He provided tax and other advice to Deloitte's clients that were considering corporate acquisitions.
The SEC alleges that between 2006 and 2008, James Sanders used the non-public information obtained from the McClellans to purchase derivative financial instruments known as "spread bets" that are pegged to the price of the underlying U.S. stock. The trading started modestly, with James Sanders buying the equivalent of 1,000 shares of stock in a company that Arnold McClellan's client was attempting to acquire. Subsequent deals netted significant trading profits, and eventually James Sanders was taking large positions and passing along information about Arnold McClellan's deals to colleagues and clients at his trading firm as well as to his father.
Among the confidential impending transactions allegedly revealed by McClellan:
Kronos Inc., a Massachusetts-based data collection and payroll software company acquired by a private equity firm in 2007.
aQuantive Inc., a Seattle-based digital advertising and marketing company acquired by Microsoft in 2007.
Getty Images Inc., a Seattle-based licenser of photographs and other visual content acquired by a private equity firm in 2008.
The SEC's complaint alleges the following chronology involving insider trading around the Kronos transaction:
November 2006: Arnold McClellan begins advising Deloitte client on planned Kronos acquisition.
Jan. 29, 2007: McClellan signs confidentiality agreement.
Jan. 31, 2007: Following call from Annabel's cell phone, James Sanders begins buying Kronos spread bets in his wife's account.
March 11, 2007: Arnold McClellan has two-hour cell phone call with client to discuss acquisition. Less than an hour later, call from same cell phone to Annabel's family.
March 12-14, 2007: James Sanders increases size of Kronos bets.
March 16, 2007: James Sanders informs another family member that Annabel is the source of his tips; describes his agreement to split profits with her 50/50.
March 23, 2007: Deloitte client publicly announces Kronos acquisition. Kronos stock price increases 14 percent; James Sanders and other tippees reap approximately $4.9 million in U.S. dollars.
The SEC's complaint charges Arnold and Annabel McClellan with violating the antifraud provisions of the federal securities laws. The complaint seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and financial penalties.
The SEC's case was investigated by Victor W. Hong, Monique C. Winkler, Alice L. Jensen, and Jina L. Choi of the San Francisco Regional Office. The Commission would like to thank the UK Financial Services Authority, the U.S. Attorney's Office for the Northern District of California, and the Federal Bureau of Investigation for their assistance in this matter.”

The above case shows how manipulated our securities markets have become over the last several years. At one time the SEC and others would pounce on people who did anything that was remotely inappropriate. However, over the years market manipulation was looked upon as a good business practice by at least the last two presidential administrations (One democrat and one republican). The SEC under this current administration is at least trying to control the use of fraud as a legitmate part of finance.