To get in trouble for insider trading, the information you trade on has to be “inside” information in some sense. Just standing outside a company’s offices and seeing who walks in, and extrapolating from that, is probably not insider trading. Seeing where corporate jets land is mostly not insider trading, to the point that it was once a feature of Dealbreaker, though in general my advice to you is never to use “well Dealbreaker does it” as a rationale for anything. Certainly there are gray areas.
Here’s a delightful new SEC insider trading case. Richard Bruce Moore, a managing director in the private equity coverage group at CIBC’s investment bank, spent a lot of time with his buddy and client, a managing director and LBO deal manager at the Canada Pension Plan Investment Board. In addition to golf and such, “Moore contacted the CPPIB Managing Director at least once a month about deal opportunities and about the possibility of CIBC providing financing for those deals.” In early 2010 Moore noticed that his buddy was becoming less available, which set his sponsor-coverage-spidey-sense a-tingle, and so he did what any good coverage banker would do:
Sometime in March 2010, Moore asked how the CPPIB Managing Director’s other deals were going. The CPPIB Managing Director told Moore that he was working on something interesting and active. Moore then inquired about the possibility of assisting the CPPIB as an investment banker on the deal.
This got a soft ding – “The CPPIB Managing Director did not disclose the parties to the deal, but responded that, as far as CBIC participation, they would have to wait and see how it went” – and so he followed up a few days later with an email asking if CPPIB needed any debt on that deal. This got a little more information: Read more »
At trial, Mr. Nguyen testified that Ms. Jiau repeatedly pestered him with phone calls on his cellular phone and at home before Nvidia was set to report earnings in August 2008, seeking details about the company’s financials. Mr. Nguyen said he finally broke down and shared information about Nvidia’s current and future revenue, gross margins and other financial data after she interrupted him while he was bathing his young son. He pleaded guilty to criminal charges and avoided jail time after he cooperated with prosecutors. [WSJ]
I don’t want to give you legal advice, but on the other hand you could be getting it from a worse source. Scott London for instance:
[Insider trader Bryan] Shaw said that in approximately July 2012, he received a notice from Fidelity Brokerage Services that Fidelity was putting a hold on his investment account. Shaw said that he immediately called LONDON and expressed his concern that their insider trading had been discovered. Shaw said that LONDON reassured him that there was no reason for concern, and explained that insider trading was like counting cards at a casino in Las Vegas – if you were caught, they simply ask you to leave because they cannot prove it.
Oops! Six months later the FBI got to Shaw, inducing him to cooperate to save himself, and today they charged London with criminal insider trading.1 It’s tempting to conclude that the moral of this story is “never take legal advice from an accountant,” though realistically it’s more like “never take legal advice from your criminal co-conspirator.”
This case is very weird. I mean the actual case is pretty boring: London, as a KPMG audit partner on a bunch of West Coast accounts, got earnings information before it became public, and then he gave it to Shaw, and then Shaw bought stock and options and made money on it and then literally delivered literal bags filled with literal cash to London to thank him for the tips. After Shaw started cooperating he met with London, wearing a wire, and this happened:
In advance of the meeting, agents from the FBI provided Shaw with $5,000 in cash, which was placed into a manila envelope and then wrapped inside a black paper bag, which was consistent with how Shaw had described his concealing previous cash payments he had made to LONDON.
Oh you put the cash in an envelope inside a bag? They’ll never catch you! Read more »
Scott London’s path from KPMG LLP partner to subject of insider-trading investigations began with a casual conversation in 2010 with “someone I’d known from the golf club, ” he said in an interview. Mr. London said the discussions—which began after he had spent a quarter of a century at KPMG—concerned corporate audit clients Herbalife Ltd. and Skechers USA Inc. It wasn’t until the second or third chat that he realized that his unidentified friend was trading on the information, he said…In late March, Mr. London said he was contacted by the Federal Bureau of Investigation, at which point he hired a lawyer, Harland W. Braun…Mr. Braun said his client hadn’t reached a deal with prosecutors or the SEC to settle any allegations that may result from their investigations. Mr. Braun said the friend’s brokerage had frozen his trading account, adding that some of these trades had lost money. “It just shows how dangerous casual tips can be,” Mr. Braun said. [WSJ]
Insider trading confuses many people but few react quite like Mark Rosenblum, who has this to say about Thomson Reuters:
By an agreement between THOMSON and the … University of Michigan, the Product [i.e. the Thomson Reuters/University of Michigan Surveys of Consumers] is compiled by the University of Michigan, and released by THOMSON in 3 tiers.
The tiered release provides a bimonthly release of information to “ultra low-latency” subscribers at 2 seconds before 9:55am, followed by “desktop” subscribers at 9:55am, followed by release to the public at 10:00am. …
On or about May 10, 2012, Richard Turner, a THOMSON employee, e-mailed THOMSON employees, stating that the Product provided “potentially market-moving information” to the “ultra low-latency” subscribers who received the Product at 2 seconds before 9:55am. …
At or about this time, ROSENBLUM formed the reasonable belief that the Product’s tiered distribution violated securities laws barring insider trading.
So: do you agree with him? Hold that thought. Read more »
Another intriguing development in the insider trading investigation centered on SAC Capital in a week already overflowing with them: Mathew Martoma is replacing his defense lawyer. The move immediately raises questions about whether Martoma plans to change his strategy, which, so far, at least, could be characterized as: fight without giving an inch…His former attorney, Charles Stillman, of Stillman & Friedman, is known as a spirited fighter. Martoma is replacing him with Richard M. Strassberg of Goodwin and Proctor, a much larger firm that has secured some victories in defending insider trading cases…Strassberg could not be reached for comment. “The young man made a decision, I wish him well,” Stillman said Thursday, explaining that his life had changed quickly, now that he wasn’t bracing for a possible summer trial. “We have a house in the Berkshires, and we’re talking about redoing our deck,” he said. “So the day this happened, I called my wife and said, ‘Call the contractor, it’s time to finish the deck!’” [BusinessWeek]
Once upon a time there was a settlement between the SEC and Citigroup over some bad stuff that Citi did, or maybe did, since the settlement did not require Citi to admit any guilt. But then the judge overseeing the case, Jed Rakoff of the Southern District of New York, bravely stood up and said: No, this settlement is Not Right, in small part because of that not-admitting-guilt thing.1 And lo he was a hero throughout the land, except in the Court of Appeals for the Second Circuit, which will likely reverse him.
I’m sure Judge Rakoff’s colleague Victor Marrero didn’t hold up SAC Capital’s proposed settlement with the SEC last week with the express goal of getting financial bloggers to say on Twitter that “Victor Marrero is the new Jed Rakoff,” but … kind of, right?
Here you can read the New Yorker‘s John Cassidy getting all exercised about the settlement, saying that “To his credit, Judge Marrero has, at least for now, refused to go along with this travesty.” I guess a lot of people don’t like this not admitting or denying thing that’s all the rage in SEC settlements these days (and, to be fair, always). But there’s an important difference between the two cases; Judge Rakoff had a reason for rejecting the Citi settlement, and Judge Marrero doesn’t particularly seem to have a reason for rejecting the SAC one.2 Read more »
Just in the nick of time. Read more »
Hope this clears things up. Read more »
So Mathew Martoma: pretty bad investment for SAC, no? He “was unable to generate … winning trades or outsized returns in 2009 and 2010, and did not receive a bonus in either of those years. In a 2010 email suggesting that Martoma’s employment be terminated, an [SAC] officer stated that Martoma had been a ‘one trick pony with Elan.’” Now we know what the trick was – it was insider trading! – and it looked like a good one in 2008 anyway, making SAC some money on the way up, saving it $276 million by selling out just before Elan announced negative drug trial results, and earning Martoma $9.3 million in what turned out to be his last bonus at SAC.
The trick looks less good today: Read more »