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.

SEC CHARGES TWO SPAINARDS WITH INSIDER TRAIDNG

It is good to see that the current SEC is willing to go after all kinds of fraudsters. In the past fraud did not seem important to the SEC until there was a complete meltdown in the stock market, commodities market or more recently, the housing market. The following case seems fairly straight forward. It seems that a resident of Spain who was an officer at a large bank (Banco Santander, S.A.) decided that he and another man could make a lot of money on some inside information that he had obtained through his position. The following excerpt from the SEC web page explains in detail the fraud and the remedy that the SEC is asking for:

Washington, D.C., Aug. 24, 2010 — The Securities and Exchange Commission has charged two residents of Madrid, Spain with insider trading and obtained an emergency court order to freeze their assets after they made nearly $1.1 million in illegal profits by trading in advance of last week's public announcement of a multi-billion dollar cash tender offer by BHP Billiton Plc to acquire Potash Corp. of Saskatchewan Inc.

The SEC alleges that Juan Jose Fernandez Garcia and Luis Martin Caro Sanchez purchased — on the basis of material, non-public information about the impending tender offer — hundreds of "out-of-the-money" call option contracts for stock in Potash in the days leading up to the public announcement of BHP's bid on August 17. Garcia is the head of a research arm at Banco Santander, S.A. — a Spanish banking group advising BHP on its bid. Garcia and Sanchez jointly spent a little more than $61,000 to purchase the contracts in U.S. brokerage accounts. Immediately after BHP's offer was announced publicly on August 17, Garcia and Sanchez sold all of their options for illicit profits of nearly $1.1 million.

"Garcia and Sanchez tried to move off-shore highly suspicious trading profits made just a few days before. When abusive market practices occur, as in the case against Garcia and Sanchez, we will act swiftly and decisively to deny wrongdoers the profits of their illegal activity," said Daniel M. Hawke, Chief of the Enforcement Division's Market Abuse Unit.

According to the SEC's complaint filed Friday in U.S. District Court for the Northern District of Illinois and unsealed by the court today, BHP made an unsolicited $38.6 billion offer to purchase all of the stock of Potash for $130 per share in cash. The acquisition share price represented a 16 percent premium above Potash's closing price of $112.15 on August 16. Potash, based in Saskatoon, Canada, is the world's largest producer of fertilizer minerals and its stock trades on the New York Stock Exchange. BHP, based in Melbourne, Australia, is the world's largest mining company.

The SEC alleges that Garcia was in possession of material, nonpublic information regarding BHP's offer to acquire Potash while he purchased approximately 282 call option contracts for Potash stock from August 12 to 16. The majority of the contracts were set to expire on August 21, and all but six of the call option contracts purchased by Garcia were out-of-the-money. Sanchez, while in possession of material, nonpublic information regarding BHP's offer to acquire Potash, purchased approximately 331 out-of-the-money call option contracts for Potash stock on August 12 and 13. He purchased the contracts in an account at Interactive Brokers LLC — the same U.S. brokerage firm through which Garcia traded his Potash call option contracts. Sanchez's contracts were set to expire within weeks of the purchase date. Neither individual had previously traded this year in Potash securities through his account at Interactive Brokers.

The emergency court order obtained late Friday by the SEC on an ex parte basis and unsealed by the court today freezes approximately $1.1 million in assets and, among other things, grants expedited discovery and prohibits Garcia and Sanchez from destroying evidence.

The SEC alleges that Garcia and Sanchez violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. In addition to the emergency relief, the Commission is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.
The SEC's investigation is continuing.”

The above dealt with a relatively small amount of money stolen by not such rich and powerful men. You have to wonder how often such crimes are committed and whether or not the same outcome occurs when such crimes are committed by much richer and more powerful men who have access to even more insider information. Nevertheless, the SEC did some good investigative work in finding these individuals before they could hide the money in a foreign account.