insider trading

DealBook: U.S. Charges 7 for Insider Trading of Dell Stock

January 19, 2012 by NewsMaker Leave a Comment

Timothy A. Clary/Agence France-Presse — Getty ImagesAnthony Chiasson, a co-founder of Level Global, leaving federal court on Wednesday. His hedge fund is accused of making $53 million from illegal trades.

9:05 p.m. | Updated

Sandeep Goyal was a small-time stock analyst with a big connection.

Before pursuing a career on Wall Street, Mr. Goyal spent three years at Dell, and after he left in 2006, he kept close ties to his colleagues at the computer maker. In 2008, while working at a mutual fund company, Mr. Goyal received illegal tips from a Dell executive about the company’s financial results, federal authorities say.

Mr. Goyal, they say, used the secret information as currency, passing it around to his expanding network of fellow stock pickers. The leaks, emanating from Dell’s headquarters in Texas, ricocheted around the country, reaching a fund manager at a small trust company in California and three powerful hedge funds in New York and Connecticut.

On Wednesday, federal prosecutors announced criminal charges against Mr. Goyal and six others, depicting a “circle of friends” that together earned about $62 million in illegal gains in Dell stock.

One hedge fund, Level Global Investors, made $53 million of those profits, the government said. Level Global is the most prominent hedge fund touched by the government’s insider trading prosecutions since the Galleon Group closed in 2009 after the arrest of its co-founder, Raj Rajaratnam.

A co-founder of Level Global, Anthony Chiasson, 38, was among those charged on Wednesday. Also charged were Todd Newman, 47, a former trader at Diamondback; Daniel Kuo, 36, a former portfolio manager at Whittier Trust Company in Pasadena, Calif., and Jon Horvath, 42, an analyst at Sigma Capital, a unit of SAC Capital Advisors, the hedge fund run by the billionaire investor Steven A. Cohen.

The Dell executive was not named in the government’s complaint. A company spokesman said that if the accusations were true, the action was a clear violation of Dell’s policies.

Lawyers for Mr. Chiasson and Mr. Horvath issued separate statements denying the government’s charges against their clients. The other defendants’ lawyers did not immediately respond to requests for comment.

The arrest of Mr. Horvath, who is accused of making $1 million in illegal profits, adds to the list of former SAC Capital employees ensnared by the government’s insider trading crackdown. Last year, two former SAC portfolio managers, Noah Freeman and Donald Longueuil, pleaded guilty to trading on illegal stock tips while at the company.

Another pair of former SAC Capital traders, David Ganek and Mr. Chiasson, started Level Global, which closed last year. Mr. Ganek has not been accused of any wrongdoing.

Diamondback was also started by SAC Capital alumni, including Mr. Cohen’s brother-in-law, Richard Shimel. Mr. Shimel has not been accused of any wrongdoing, and Diamondback continues to operate. On Wednesday, the company sent a letter to its investors that said it had assisted in the investigation and that the government’s charges were “an important step towards putting this matter behind us.”

An SAC spokesman said the firm was continuing to cooperate with the investigation.

Though hedge funds are again at the center of insider trading charges, the case is the first time that charges from the government’s insider trading inquiry has reached into the sleepier mutual fund industry. Mr. Goyal worked at Neuberger Berman, a New York money manager with a large mutual fund business.

The 39-year-old Mr. Goyal, who has pleaded guilty and is cooperating with the government, received about $175,000 in illicit payments from Diamondback for “consulting” work. He did not make any illegal trades at Neuberger Berman, which has not been accused of any wrongdoing.

“This unethical behavior is contrary to the core values of our firm and the culture of compliance in which we operate,” a Neuberger spokesman said.

Jesse Tortora, 36, a former trader at Diamondback, and Spyridon Andondakis, 40, a former trader at Level Global, also pleaded guilty and have been cooperating with the government.

The case is the latest round of prosecutions in a multiyear government campaign to root out insider trading. Nicknamed “Operation Perfect Hedge,” the investigation has led to more than 60 guilty pleas or convictions.

“If you are engaged in insider trading, what distinguishes you from the dozens who have been charged is not that you haven’t been caught; it’s that you haven’t been caught yet,” said Janice K. Fedarcyk, the head of the Federal Bureau of Investigation’s New York office.

The Securities and Exchange Commission filed a parallel civil action against the seven defendants on Wednesday.

Wednesday’s charges again highlighted the web of connections on Wall Street. Mr. Goyal, Mr. Tortora and Mr. Andondakis, for instance, all worked together earlier in their careers at Prudential Equity Group, and they socialized together in Manhattan and the Hamptons.

“It was a club where everyone scratched everyone else’s back,” Preet S. Bharara, the United States attorney in Manhattan who brought the charges, said at a news conference.

More than a year ago, the government raided a series of hedge funds. Federal agent stormed the offices of Level Global, Diamondback Capital Management and two others in November 2010 to retrieve documents and other materials. Months after the November raid, Level Global closed.

Mr. Chiasson and Mr. Ganek started Level Global in 2003 shortly after leaving SAC Capital. They used “Level” in its name because, Mr. Chiasson once said, “Level is a palindrome which connotes balance and adaptability — two key investing traits.”

In a few years, the fund’s assets swelled to nearly $4 billion, attracting major clients like the New York state pension fund.

Inside the firm, the two men exhibited different styles, according to former employees. Mr. Chiasson had a calm and even demeanor, peppering his analysts with questions while rarely raising his voice.

Mr. Ganek, by contrast, often barked out directions over the Bloomberg terminals and was a more excitable trader.

Their different styles were also apparent in their personal lives.

While Mr. Ganek was prominent in the Manhattan social scene, serving on boards and buying millions of dollars worth of modern art, Mr. Chiasson, who grew up near Portland, Me., eschewed the limelight.

Since closing the hedge fund, Mr. Ganek has kept a low profile on Wall Street. He is said to be planning a new investment venture, financed mostly by his own wealth, according to a person with knowledge of the matter spoke only anonymously because the discussions were private.

Level Global made by far the largest profits in the scheme, according to the government’s accusations. After learning from Mr. Andondakis that a source inside Dell had leaked the company’s bleak financial outlook, Mr. Chiasson oversaw a large negative bet on the computer company, according to the government.

The fund accumulated a short position in Dell of 8.6 million shares in the weeks leading up to the company’s earnings announcement. It also bought at least 10,900 put option contracts, a derivatives trade that would magnify the fund’s profits if the price of Dell’s stock dropped.

Dell shares declined 14 percent on its earnings announcement. It continued to sink until Level Global closed out its position on Sept. 16, 2008 — the day after the collapse of Lehman Brothers. The fund’s total illegal profits were $53 million, the government said.

“You might call that the big short,” said Mr. Bharara, a reference to “The Big Short,” Michael Lewis’s book about the financial crisis.

“Or more precisely: the big illegal short,” Mr. Bharara added.

Ben Protess contributed reporting.

U.S. v. Newman, Chiasson, Horvath and Kuo

Article source: http://feeds.nytimes.com/click.phdo?i=6b70a10b76e07b5530289350e429bc16

Filed Under: Business News Tagged With: daniel kuo, illegal gains, insider trading

Swiss Bank Chief Vows Not to Resign Over Currency Trades

January 5, 2012 by NewsMaker Leave a Comment

“I am not aware of any legal transgressions,” Mr. Hildebrand said at a news conference in Zurich. “But I understand that the public also poses the moral question.”

The 48-year-old head of the Swiss National Bank, who played a high-profile role in formulation of new global standards designed to limit risky behavior by bankers, was by turns contrite and angry during the one-hour appearance, which was broadcast on the Internet.

While expressing regrets, Mr. Hildebrand portrayed the accusation of insider trading as the work of his enemies on the Swiss political right, and said he was considering taking legal action against those who used information stolen from a personal account at Bank Sarasin, a Swiss private bank.

“The personal attacks against me have reached the point where I had to defend myself,” Mr. Hildebrand said.

An information technology worker at Bank Sarasin faces a criminal investigation for allegedly giving the information to the Swiss People’s Party, whose most visible leader, Christoph Blocher, has been a bitter critic of Mr. Hildebrand.

Appearing on a Swiss television program Thursday, Mr. Blocher confirmed that he had passed on information about the transactions and called Mr. Hildebrand “no longer tolerable.”

But Mr. Hildebrand also faces a storm of criticism across the political spectrum, with members of Parliament and commentators questioning whether he has damaged the credibility of the Swiss National Bank and Switzerland’s image abroad. Mr. Hildebrand is vice president of the Financial Stability Board, a group of central bankers and regulators that plays a leading role in recommending bank regulations to the leaders of the Group of 20 nations.

Mr. Hildebrand vowed to “continue to apply all of my energy to my job as president” of the Swiss central bank.

During the news conference, Mr. Hildebrand denied a key assertion by Weltwoche, a right-leaning Swiss magazine that first reported many details of the accusations. The publication said it had evidence that Mr. Hildebrand, and not his wife, had personally made a large investment in dollars just days before the Swiss National Bank stepped up its intervention in currency markets. The central bank was then engaged in an intense effort to stem the rise of the franc and protect Swiss exporters.

Mr. Hildebrand said that his wife, Kashya Hildebrand, had legal power to use the account and bought dollars because she considered them very cheap. He described her as an economist and “strong personality” who takes a keen interest in finance.

When he learned of the transaction the next morning, Mr. Hildebrand said, he immediately called his adviser at Bank Sarasin and told him not to make any more trades without his approval, and reported the transaction to S.N.B. compliance officials.

Mr. Hildebrand said he now regretted that he did not undo the transaction. Auditors from PricewaterhouseCoopers, hired by the council that oversees the Swiss National Bank, agreed with Mr. Hildebrand’s version of events.

But Mr. Hildebrand also said the case showed the need for more disclosure by top officials in the central bank. In the future, he said, he and other members of the S.N.B. directorate should make public all transactions worth more than 20,000 Swiss francs, or $21,000, and get clearance from the bank’s compliance department.

Mr. Hildebrand said he had donated 75,000 francs to an organization that promotes preservation of Swiss mountain regions. That is the sum that Weltwoche, the magazine, said that Mr. Hildebrand earned on the trades.

But it is unclear how much profit Mr. Hildebrand actually made from the trades.

In August, Mrs. Hildebrand spent 400,000 francs to buy $504,000, the auditors said, two days before the S.N.B. stepped up its intervention in currency markets.

In October, Mr. Hildebrand sold about the same amount of dollars at a more favorable exchange rate, earning about 64,000 francs.

But in March, after the sale of a vacation home, Mr. Hildebrand had purchased nearly $1.2 million when the exchange rate was much less favorable. So at least on paper that investment was a money loser.

Any profit would not be a large sum for the Hildebrands, whose personal wealth was evident Thursday in the size of their real estate assets. One reason that Mr. Hildebrand bought dollars in March, he said, was that the family’s Alpine vacation home had just sold for 3.3 million francs and he wanted to diversify his currency holdings.

The accusations put huge political pressure on Mr. Hildebrand, but it appears unlikely that he will face criminal charges. Switzerland’s insider trading law does not apply to currency transactions, said Andreas Brunner, head of a prosecutor’s unit in Zurich that focuses on economic crimes.

Mr. Brunner’s office said Thursday that it would pursue a criminal investigation of a 39-year-old former employee of Bank Sarasin for possible violations of the country’s bank secrecy law. The man, who was not identified, is suspected of leaking records of Mr. Hildebrand’s currency transactions.

The employee was able to call up Mr. Hildebrand’s records on a bank computer but not print them out. Mr. Hildebrand asserted that the employee used a mobile phone or digital camera to photograph the computer screen.

Bank Sarasin said Tuesday that it had fired the employee, who had turned himself in to the police in Zurich. The charges carry a maximum sentence of three years in prison.

Article source: http://feeds.nytimes.com/click.phdo?i=02189e1f5899f477c8850d4dcf952204

Filed Under: Business News Tagged With: financial stability, hildebrand, insider trading

DealBook: In Rajaratnam Hearing, Judges Focus on Flight Risk

November 30, 2011 by NewsMaker Leave a Comment

Jin Lee/Bloomberg NewsPatricia A. Millett, left, Samid Guha and Terence Lynam, lawyers for Raj Rajaratnam, outside a federal court in Lower Manhattan.

A lawyer for Raj Rajaratnam appeared before a judicial panel in a Lower Manhattan courtroom on Wednesday in a final effort keep her client out of prison while he appealed his conviction on charges of insider trading.

The lawyer came prepared to discuss complex legal concepts related to the Fourth Amendment of the Constitution and Title III of the Federal Wiretap Act. Instead, all the judges wanted to discuss was whether there was a risk that Mr. Rajaratnam, if allowed to remain free on bail, would flee to his native Sri Lanka.

“Wouldn’t he rather be living as a centimillionaire in his own country rather than as a convict in a jail?” Judge Dennis Jacobs asked Patricia A. Millett, the lawyer for Mr. Rajaratnam.

Mr. Rajaratnam, who did not attend the hearing, is set to report to a federal penitentiary in Ayer, Mass., on Monday to begin serving his 11-year sentence. A jury convicted him earlier this year of orchestrating an enormous insider trading conspiracy at his hedge fund, the Galleon Group.

Three judges on the United States Court of Appeals for the Second Circuit are reviewing the trial court judge’s ruling that denied Mr. Rajaratnam bail pending the appeal of his conviction. If the panel rules in his favor, Mr. Rajaratnam will remain free while his case wends its way through the appellate process, which could take as long as a year.

Andrew Gombert/European Pressphoto AgencyRaj Rajaratnam, the founder of the Galleon Group, was convicted of insider trading earlier this year.

Mr. Rajaratnam’s central argument is that federal authorities improperly obtained judicial authorization to wiretap his telephone and secretly record conversations between him and his alleged accomplices.

Yet the panel of judges at the appeal surprised both Mr. Rajaratnam’s lawyers and the government by focusing on Mr. Rajaratnam’s risk of flight.

Ms. Millett said that there was no way he would flee to Sri Lanka because he had no reason to go there. She pointed out that all of his family was in the United States and he had an apartment there that was on the market.

“He can’t even get there,” she said. “His passport was surrendered.”

But the panel of judges pressed the issue. Judge Jacobs asked Jonathan Streeter, a federal prosecutor arguing on the government’s behalf, whether he did not focus on flight risk in his papers because “you think it’s a loser.”

“No, we think it’s a winner,” said Mr. Streeter, who added that it was such a winner that the argument could be reduced to a paragraph. Mr. Streeter said that Mr. Rajaratnam had strong ties to Sri Lanka, had shown a disrespect for the law and had the financial wherewithal to flee.

Judge Peter W. Hall asked Mr. Streeter whether it was possible for Mr. Rajaratnam, or any “person with means and ingenuity,” to flee even if he was wearing an ankle bracelet. Mr. Streeter said that there had been hundreds of examples of defendants fleeing the country even under electronic monitoring.

There was some discussion of the validity of the government’s wiretap application, which will form the core of Mr. Rajaratnam’s appeal. The government argued that the appeals court should defer to the trial-court judge, Richard J. Holwell, who concluded that even with errors in the application, the government appropriately obtained wiretap authorization.

Ms. Millett, the lawyer for Mr. Rajaratnam, countered that the government showed reckless disregard for the law in omitting crucial information about its investigation when asking for wiretap approval. As a result, the government should not have been able to use the wiretaps as evidence at trial.

“If there is a failure to do any of the requirements in Title III, it must be suppressed,” Ms. Millett said.

The panel said it was reserving judgment. A decision is expected before the week’s end.

Article source: http://feeds.nytimes.com/click.phdo?i=b3f6636bc4f41bb9cf1e73f17b6016d5

Filed Under: Business News Tagged With: final effort, insider trading, record conversations

Economix Blog: Rajat Gupta, Merely Affluent

October 28, 2011 by NewsMaker Leave a Comment

Spencer Platt/Getty ImagesRajat K. Gupta leaving court on Wednesday.

Rajat Gupta was rich by almost any standard. He just wasn’t rich compared with many of the people who surrounded him. He knew it, and he didn’t seem to like it.

More than a few of his friends and colleagues had tens or even hundreds of millions of dollars. They included his fellow board members at Goldman Sachs, the alumni of McKinsey Company — a firm that Mr. Gupta ran and that paid him a few millions of dollars a year — who then made fortunes on Wall Street and, perhaps most important, his friend Raj Rajaratnam, the hedge-fund manager sentenced to 11 years in prison for insider trading. Mr. Gupta, who was indicted Wednesday for passing along corporate secrets to Mr. Rajaratnam, has proclaimed his innocence.

DAVID LEONHARDT

Thoughts on the economic scene.

What seems beyond doubt, however, is that he was envious of the wealth that his peers were amassing. In that way, Mr. Gupta is a symbol of a different kind of income inequality from the one at the heart of the Occupy Wall Street protests, where demonstrators proclaim themselves part of the “other 99 percent” and criticize the top 1 percent of earners.

Mr. Gupta was surely part of the 1 percent. But seems to have felt as if he was part of the other 99 percent of that 1 percent.

You don’t have to sympathize with him to see how his envy could have affected the choices he made — orienting his post-McKinsey career around making money, handing over large chunks of his money to Mr. Rajaratnam and, at least according to prosecutors, going to great lengths to curry favor with Mr. Rajaratnam.

Such envy extends well beyond people accused of committing crimes. The inequality among the rich is a major force pushing many graduates of the country’s top colleges to Wall Street and drawing middle-aged professionals from other lines of work to finance.

Consider the numbers. Three decades ago, a taxpayer at the cutoff for the top 0.01 percent of earners — that is, in the top 1/10,000th — was making about 10 times as much as someone at the cutoff for the top 1 percent, according to research by the economists Emmanuel Saez and Thomas Piketty.

Since then, the top 1 percent has done very well, nearly doubling its income in inflation-adjusted terms, which is a far bigger raise than most households have received. Yet the very rich have done vastly better: someone at the cutoff for the top 0.01 percent now makes 30 times as much as someone at the top 1 percent, according to the latest numbers.

To someone making a few million dollars a year, these very rich — rather than the median-earning American — are often the relevant benchmark. “Most families are trying to keep up with the Joneses,” as Catherine Rampell wrote in a post here earlier this year. “And in dollar terms, the rich are falling far shorter of their respective Joneses than the middle-income and lower-income are.”

Article source: http://feeds.nytimes.com/click.phdo?i=b0296c9945680931d4e7f22e0811625b

Filed Under: Economy News Tagged With: goldman sachs, hedge fund manager, insider trading

DealBook: Hedge Fund Manager Expected to Plead Guilty to Insider Trading

October 21, 2011 by NewsMaker Leave a Comment

Daniel Barry for The New York TimesPreet S. Bharara, the United States attorney in Manhattan.

A hedge fund manager from a prominent Denver family is expected to plead guilty on Friday to insider trading charges.

Bo K. Brownstein, the head of Big 5 Asset Management and a former banker at Credit Suisse in New York, is expected to appear in Federal District Court in Manhattan and admit to making illegal profits by trading on a confidential stock tip about a corporate merger, according to two people briefed on the case who requested anonymity because they were not authorized to discuss it.

His lawyer, Gary P. Naftalis, declined to comment.

Mr. Brownstein’s guilty plea would continue a spate of successful insider trading prosecutions brought by Preet S. Bharara, the United States attorney in Manhattan. Last week, Raj Rajaratnam, the former hedge fund manager, was sentenced to 11 years in prison, the longest insider trading sentence ever imposed.

The case against Mr. Brownstein was far more discrete than Mr. Rajaratnam’s sprawling conspiracy. According to federal prosecutors, it originated with a single stock tip from H. Clayton Peterson, a former director of Mariner Energy, based in Denver, who told his son about a forthcoming $2.7 billion takeover of Mariner by the Apache Corporation in April 2010.

The son, Drew Peterson, a money manager, traded on the tip and earned about $150,000. He also passed the news to his close friend Mr. Brownstein, at first during a workout at their gym. In the days before the deal was announced, Mr. Brownstein loaded up on Mariner shares and options, according to court papers.

Federal prosecutors have not yet identified Mr. Brownstein in its court filings, referring to him only as a co-conspirator of the Petersons. The government’s complaint said that the co-conspirator earned more than $5 million in illegal profits for his fund and his relatives.

Both of the Petersons pleaded guilty to insider trading crimes in August. Earlier this month, a federal judge sentenced Clayton Peterson to two years of probation, meaning no prison time. Drew Peterson has not yet been sentenced.

The case has shocked Denver’s business community. Mr. Brownstein, 35, is the son of Norman Brownstein, a Denver lawyer and a longtime power broker in state and national Democratic politics. Bo Brownstein bought shares of Mariner for his father’s account without his father’s knowledge, according to people briefed on the case.

Clayton Peterson spent 33 years at Arthur Andersen, the now-defunct accounting firm. He ran the firm’s Denver office and served on a number of corporate and philanthropic boards in the city.

Bo Brownstein, a graduate of Columbia Business School, had lofty ambitions for his fledgling fund. Big 5 started with $50 million, but he had told prospective investors that he hoped to raise as much as $1 billion. In a press release last year announcing the addition of a real estate investment vehicle, Big 5 described itself as “a premier Denver-based alternative asset management firm.”

Article source: http://feeds.nytimes.com/click.phdo?i=ebdfcaf2ce177524cb6cf574588ce4b4

Filed Under: Business News Tagged With: insider trading, relati, stock tip

Columbia Professor Is Linked to Insider Trading Case

September 17, 2011 by NewsMaker Leave a Comment

He was described only as “Doctor 1” in a Massachusetts insider-trading complaint against a hedge fund operator.

Doctor 1 talked to the money manager in June 2010 about an unpublished study of an obscure drug, according to the complaint filed by the state’s securities regulator. The hedge fund bought more than $800,000 in stock in Questcor, the company whose sole product was that drug, and saw its value soar.

It turns out that Doctor 1 is an assistant medical professor at Columbia and a kidney expert , whose name is Dr. Andrew S. Bomback. He was identified by a comparison of the veiled references in the Massachusetts filing with a press release from Questcor Pharmaceuticals, the California company selling the drug.

“I’m actually surprised you were able to identify me,” Dr. Bomback said in a phone call.

While confirming his involvement, though, he denied any wrongdoing, as did the hedge fund manager, James A. Silverman of Cambridge, Mass. The securities case focuses on Mr. Silverman.

The civil case, however, first brought against Mr. Silverman last March, has spawned a new set of regulations in Massachusetts that will take effect later this year.

William F. Galvin, the Massachusetts secretary of state and securities regulator, has proposed a change in that state’s regulation of interactions between experts like Dr. Bomback and securities traders who may be tempted to seek out and act on information that could be construed as confidential.

The changes, effective Dec. 1, would force Massachusetts’ regulated investment advisers to obtain disclosure of all the areas that a consultant in an expert network is prohibited from discussing before the investment advisers could talk to that consultant. Mr. Galvin, in an interview, said the rule would clarify what was illegal.

“The bigger issue here is there were loopholes being exploited by companies to get insider information and basically corrupting the marketplace,” Mr. Galvin said.

He said that states were playing a much larger, everyday role in regulations under the Dodd-Frank Wall Street Reform Act of 2010, even as a few prominent federal cases made headlines.

Dr. Bomback’s role was that of an academic researcher with connections. His findings, including remarkable success on his own patients, have helped a drug market balloon, even as he signed a $50,000-a-year consulting contract with the drug maker, records show, and took thousands of dollars from an intermediary, Guidepoint Global, an expert network, that put him in touch with money managers.

In one sense, his research was limited to a retrospective case series reported in a fairly obscure medical journal, Drug Design, Development and Therapy. But in another sense, it was vitally important for the company and its investors.

Dr. Bomback reviewed every known patient in the nation who had tried the drug by the end of 2009 for a debilitating kidney disease known as nephrotic syndrome.

There were only 21 such patients total, eight of them in Dr. Bomback’s own practice. Most had failed other treatment and pinned their hopes on a kidney transplant or a lifetime of dialysis.

The study found that 9 of 11 of the patients with a certain type of nephrotic syndrome responded well to treatment. In doing so, the study has helped transform the drug, called H.P. Acthar Gel, from the status of an orphan to that of a potential blockbuster.

Questcor told investors this month that the expensive, injectable drug could have $1 billion sales for the niche condition Dr. Bomback studied. The drug costs more than $23,000 a vial; Questcor, betting on its value, had raised the price from $1,650 a vial in 2007. The drug is also sold for ultrarare infant spasms and select multiple sclerosis patients.

Dr. Bomback and other Columbia researchers continue to analyze Acthar in a company-sponsored clinical trial. As for the $50,000-a-year consulting agreement he signed with Questcor in January 2010, Dr. Bomback said it was changed in April 2010 to $10,000 a year for five years “to comply with new rules adopted by Columbia University limiting consulting fees.”

The university’s policy was actually last changed in July 2009, said Douglas Levy, a spokesman. It generally prohibits faculty with consulting payments over $10,000 from researching that company’s products.

Mr. Levy declined to discuss Dr. Bomback’s actions in detail, saying any university inquiry would be conducted and resolved privately.

Dr. Bomback said his pay for talking to money managers in the Guidepoint expert network was small: just $3,541 since Jan. 1, 2010.

The Massachusetts complaint portrays a sharp turnaround for Mr. Silverman’s hedge fund after he began paying Guidepoint $80,000 a year for the right to interview two experts a week. Most of them were conducting confidential research for various drug makers, the complaint said. They were supposed to talk about other things — a policy Guidepoint informs them about but does not track to ensure compliance.

Mr. Silverman’s fund, Risk Reward Capital, had lost 16 percent of its value in 2007, but after joining Guidepoint in 2008, it gained 55 percent in 2009 and 52 percent in 2010, the complaint said. State authorities also accuse him of illegal trading in another company, Ariad Pharmaceuticals, with help from unidentified Guidepoint experts, which he also denies.

Article source: http://feeds.nytimes.com/click.phdo?i=352e3acc098b543a554f8ed67fbbf2bb

Filed Under: Business News Tagged With: hedge fund manager, insider trading, medical professor

Business Briefing | Legal News: Lawyer Sentenced in Insider Trading Case

August 20, 2011 by NewsMaker Leave a Comment

Opinion »

Editorial: Not the America They Expected

No foreign workers should have to put up with bullying from bosses or threats of firing, or deportation, if they want to organize.

Article source: http://feeds.nytimes.com/click.phdo?i=2259749130795ed801bf3bfe5bca53ef

Filed Under: Business News Tagged With: insider trading, lawyer, legal news

DealBook: How Serious a Crime Is Insider Trading?

August 11, 2011 by NewsMaker Leave a Comment

Peter Foley/Bloomberg NewsRaj Rajaratnam leaving federal court during his trial in the spring.

As could be expected, the sentencing memos submitted by Raj Rajaratnam, the hedge fund manager convicted of insider trading charges, and by federal prosecutors paint very different pictures of the defendant.

At their core, the two filings put forth dueling views about just how serious the crime of insider trading is and what is an appropriate punishment for an offense that often involves successful individuals who can argue they did not mean to cause any real harm.

The defense filing asserts that “[w]ith the sole, and significant, exception of his criminal conviction in this case, the evidence shows that Mr. Rajaratnam lived a life that was not just blameless, but exemplary.”

Prosecutors, on the other hand, maintain in their filing that Mr. Rajaratnam “operated as a billion-dollar force of deception and corruption on Wall Street.”

The truth most likely lies somewhere in between. It will be up to Judge Richard J. Holwell to decide in Federal District Court in Manhattan on Sept. 27 when he sentences Mr. Rajaratnam, who was convicted of 14 counts of conspiracy and securities fraud.

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Although it does not recommend a particular sentence, Mr. Rajaratnam’s memorandum asks Judge Holwell to sentence him to a term of imprisonment well below what is called for by the federal sentencing guidelines, which the government asserts provides for a recommended term of 19 and a half to 24 and a half years in prison.

Mr. Rajaratnam’s lawyers point out that other defendants tied to his firm who entered guilty pleas received comparatively light sentences, like the 30-month sentence given to Danielle Chiesi, a co-defendant of Mr. Rajaratnam, and the 27-month sentence imposed on the hedge fund manager Mark Kurland. They argue that a sentence for Mr. Rajaratnam even close to that recommended by the sentencing guidelines would be wildly disproportionate to the punishments given to Ms. Chiesi and Mr. Kurland for essentially the same conduct.

Beyond just the facts of his case, Mr. Rajaratnam’s memo offers a deeper justification for a lighter sentence: his crime did not involve any identifiable victims, nor did it cause the kind of harm inflicted on investors by the likes of Bernard L. Madoff or such corporate chieftains as Jeffrey K. Skilling of Enron or Bernard Ebbers of WorldCom.

The defense memorandum portrays insider trading as a less pernicious offense than other types of securities fraud, in which individual investors can be identified as particular victims, because no one individual can be shown to have suffered identifiable losses. Even though Mr. Rajaratnam made money from the tips he received, “a defendant tippee who profits from illegal trading does not engage in conduct that is as culpable as a defendant who affirmatively steals the same amount from an identifiable victim,” the defense memorandum states.

Mr. Rajaratnam’s argument that insider trading involves unidentifiable victims, and therefore is less harmful, raises the fundamental question of how a court should view the harm caused by the violation. He is essentially arguing that this is a victimless crime, at least as compared to a case like Mr. Madoff’s vast Ponzi scheme, and therefore violators are less deserving of the kind of significant punishments imposed on those who actually steal from individual investors.

This argument reflects the fact that there are unlikely to be any letters submitted to the court in advance of the sentencing from so-called victims of his crimes, as we saw before the sentencing of Mr. Madoff, when there were poignant reminders of the enormous damage he caused. The trading by Mr. Rajaratnam’s firm, the Galleon Group, was in the stocks of large companies on highly liquid markets. Those who were on the other side of his purchases and sales are in all likelihood unaware of their connection to him and would not perceive themselves as victims.

Federal prosecutors have tried to counter this view by arguing that a substantial sentence is needed “to send a strong and clear message that the time for illegal insider trading to end is now.” Without a lengthy prison sentence, they argue:

“There is a significant danger that these executives and money managers may view a light sentence as an insufficient deterrent to insider trading, secure in the knowledge that if they are ever caught, they would be able to go to trial and argue at sentencing after conviction that whatever their conduct was, it had to have been less extensive than the crimes committed by Rajaratnam, and therefore worthy of a shorter sentence than him.”

This is similar to the Justice Department’s argument in the sentencing of Lee B. Farkas, a former mortgage company executive who received a 30-year term of imprisonment for his role in a fraud the government estimated at $2.9 billion. Insider trading is different from mortgage fraud, however, because the harm is much more difficult to measure, even if it is clear what a defendant gained from the trading.

The sentencing of Mr. Rajaratnam can almost be seen as a referendum on how insider trading should be viewed: a lighter sentence means that it is not a crime that causes significant social harm because its impact is dissipated, while a heavier sentence sends a message of deterrence in order to maintain the integrity of the markets.

An interesting question is whether the message of deterrence, what prosecutors called the desire to end insider trading, is one that will be heard. For a crime that does not involve an identifiable victim beyond the disembodied securities markets, defendants seem to be able to convince themselves that they really are not doing anything wrong, or at least not nearly as wrong as someone like Mr. Madoff and the corporate executives who destroyed their companies through accounting fraud.

Three insider trading cases announced last week involved prominent defendants who traded on and tipped confidential information used for trading that resulted in comparatively small gains. These cases lend some support to the view that those who engage in this type of conduct may not perceive themselves as violating the law because there is no immediate victim.

The two civil cases brought by the Securities and Exchange Commission involved William A. Marovitz, husband of Christie Hefner, the former chief executive of Playboy Enterprises, and a former major league baseball player, Douglas V. DeCinces. Both men were successful in other business ventures, and while Mr. DeCinces made more than $1 million from his trading, Mr. Marovitz’s case involved gains and avoided losses of about $100,000, a modest amount to break the law.

The criminal prosecution of a former director of Mariner Energy, H. Clayton Peterson, which will very likely result in his serving a prison term, involved about $150,000 in profits realized by his son Drew, who received the tips.

Is it worth risking your reputation, and perhaps even going to federal prison, for such paltry amounts? I doubt these men would participate in a grocery store robbery or help set up a Ponzi scheme, but they appear to have willingly engaged in insider trading.

In contrast, of course, the government contends Mr. Rajaratnam pulled in $63.8 million in profits through insider trading.

The length of Mr. Rajarantman’s term may not have much deterrent effect so long as insider trading is viewed as a victimless crime. The fact that the harm is to the trust in the market makes it easier to argue that there is little measurable impact from the violation when there is no victim who will stand up in court and explain what happened after the crime, as we saw at Mr. Madoff’s sentencing.

Whether that means insider trading should be treated as less serious, with a commensurately reduced punishment, will be reflected in Judge Holwell’s sentencing decision.

Defense’s Sentencing Memorandum

Prosecution’s Sentencing Memorandum

Peter J. Henning, who writes White Collar Watch for DealBook, is a professor at Wayne State University Law School.

Article source: http://feeds.nytimes.com/click.phdo?i=8f1c5335303662ebfc597ba25d86c545

Filed Under: Business News Tagged With: federal sentencing guidelines, insider trading, peter foley

DealBook: Christie Hefner’s Husband Is Accused of Insider Trading

August 4, 2011 by NewsMaker Leave a Comment

Jonathan Daniel/Getty ImagesChristie Hefner and her husband, William Marovitz.

7:38 p.m. | Updated

The Securities and Exchange Commission has accused a member of the Playboy family of breaking the law.

William A. Marovitz, the son-in-law of Hugh Hefner, the founder of Playboy Enterprises, settled an S.E.C. lawsuit filed Wednesday that accused him of trading in shares of the publisher with insider information. The S.E.C. said that Mr. Marovitz, a lawyer and a former Illinois state senator, gained about $100,000 by trading on confidential corporate developments gleaned from his wife, Christie A. Hefner, the former chief executive of Playboy.

“Despite instructions from his wife that he should not trade in shares of Playboy and a warning from the general counsel of Playboy about his buying or selling Playboy stock, Marovitz bought and sold shares of Playboy in his own brokerage accounts from 2004 to 2009 ahead of public news announcements,” said the lawsuit, which was filed in Federal District Court in Chicago.

Mr. Marovitz, 66, agreed to pay about $168,000 in penalties, disgorged profits and interest to resolve the case. The settlement is subject to approval by a federal judge.

“My client has no comment on the S.E.C.’s complaint or settlement but wishes to note that he has lost a substantial amount of money on his investments in Playboy stock,” said James R. Streicker, a lawyer for Mr. Marovitz.

The case against Mr. Marovitz continues the federal government’s far-reaching crackdown into insider trading on Wall Street and beyond. Authorities have pursued a battery of cases against defendants who include corporate lawyers, doctors and railroad workers. Dozens of hedge fund traders have found themselves in the government’s cross hairs. The United States attorney’s office in Manhattan alone has in the last two years charged about 50 defendants with insider-trading crimes.

Mr. Marovitz’s prosecution is the latest of several so-called pillow-talk cases — insider-trading violations involving husbands and wives. Earlier this year, a San Francisco woman pleaded guilty to passing merger tips to her relatives that she had learned from her husband, a partner at a major accounting firm. In 2008, federal prosecutors brought criminal charges against a Lehman Brothers broker who had obtained confidential information about pending deals from his wife, a public relations executive who advised companies on mergers and acquisitions.

Married since 1995, the 58-year-old Ms. Hefner and Mr. Marovitz are a Chicago power couple. Ms. Hefner ran the Chicago-based Playboy from 1988 to 2009 and has been one of the city’s highest-profile business executives. Mr. Marovitz has been a fixture in Illinois politics and Chicago real estate for years. He is president of the Marovitz Group, a local real estate developer. They have no children.

The S.E.C. accused Mr. Marovitz of improper trading in Playboy stock on a number of occasions despite clear warnings from his wife and the company’s general counsel that he should not buy or sell Playboy shares while in possession of confidential information.

Howard Shapiro, the company’s top lawyer, specifically requested that Mr. Marovitz consult with him before trading Playboy stock. Mr. Marovitz never contacted him to discuss any of his transactions, the S.E.C. said.

A number of Mr. Marovitz’s trades surrounded Playboy’s 2009 merger talks with the Iconix Brand Group. During the time Ms. Hefner was negotiating the sale of the company to Iconix, Mr. Marovitz bought Playboy shares while knowing secret information about the deal that he had obtained from his wife, the complaint said. When Playboy announced the potential merger, Playboy’s stock rose 42 percent.

Iconix eventually dropped its acquisition plans. Before the news became public, causing a 10 percent drop in Playboy’s stock, Mr. Marovitz dumped his shares, avoiding thousands of dollars in losses, the S.E.C. said.

In another instance, in August 2004, Mr. Marovitz sold all his Playboy stock the day before the company reported a large quarterly loss that resulted in an 18 percent decline in its share price. The trade allowed Mr. Marovitz to avoid a $65,000 loss, the S.E.C. said.

The case against Mr. Marovitz originated during a routine S.E.C. examination of Mesirow Financial, the Chicago brokerage firm where Mr. Marovitz executed his trades.

Earlier this year, Mr. Hefner, the company’s dominant shareholder, took Playboy private in a deal valuing the company at about $207 million. The company had been publicly traded since 1971.

S.E.C. v. William A. Marovitz

Article source: http://feeds.nytimes.com/click.phdo?i=7d36c25e613fb7c073155254d7dc7d9d

Filed Under: Business News Tagged With: breaking the law, hugh hefner, insider trading

DealBook: Husband of Ex-Playboy Chief Accused of Insider Trading

August 3, 2011 by NewsMaker Leave a Comment

Jonathan Fickies/Bloomberg NewsThe August 2010 issue of Playboy magazine.Zack Seckler/Getty ImagesChristie Hefner and her husband, William Marovitz, in 2004.

The Securities and Exchange Commission has sued the husband of Christie Hefner, accusing him of insider trading in Playboy Enterprises stock.

William A. Marovitz, the husband of Ms. Hefner, the former chief executive of Playboy, was accused of gaining $100,000 by trading on confidential information gleaned from his wife, according to a complaint filed Wednesday morning in Federal District Court in Chicago.

Mr. Marovitz, a former Illinois state senator, has agreed to pay $168,000 in penalties, disgorgement and interest to settle the civil case. His lawyer, James Streicker, did not return calls for comment.

“Despite instructions from his wife that he should not trade in shares of Playboy and a warning from the general counsel of Playboy about his buying or selling Playboy stock, Marovitz bought and sold shares of Playboy in his own brokerage accounts between 2004 and 2009 ahead of public news announcements,” said the complaint.

Among the news Mr. Marovitz traded on, according to the S.E.C.: Playboy’s negative earnings announcements, a stock offering and Playboy’s potential acquisition by the Iconix Brand Group.