insider-trading

  • 05 Mar 2013 at 5:39 PM

Even So, Mark Cuban Is Probably Glad He Got Rid Of His Mamma.com Stock

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To get a sense of how old and long-drawn-out the SEC’s insider trading lawsuit against Mark Cuban is, consider this: the company in which he allegedly insider traded was Mamma.com. The .com was right there in the name. Future generations – hell, present generations – will indiscriminately add “.com” to the end of words to create an old-timey feel, the way we doeth with “-eth.”1

Actually it happened in 2004, and I don’t even need the “allegedly”: there’s no dispute that Cuban insider traded. Everyone agrees that:

  • Mamma.com was planning to sell some stock in a PIPE offering which would, inevitably, drive down its stock price;
  • Mamma.com’s CEO called Cuban and told him about the planned PIPE offering in advance, hoping to get Cuban to buy more stock;
  • Cuban instead sold the stock he already had, prior to the public announcement of the PIPE deal; and
  • Then the PIPE was announced and the stock dropped.

So he had material nonpublic information, and he traded on it, and he avoided losses by doing so. INSIDER TRADING. The only debate is whether he insider traded illegally, which, as I often find myself reminding people, is a separate question. The SEC’s lawsuit2 turns not on the facts above, but on whether Cuban agreed not to trade before learning the inside information. Here the evidence is less clear, but there’s enough evidence that he did for the SEC to survive summary judgment today and take the case to trial. Here is that evidence:3 Read more »

  • 19 Feb 2013 at 3:16 PM

SEC Ruins One Anonymous Swiss Person’s Lucky Day

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The SEC’s Heinz insider trading complaint is a delightful epistemological puzzle. The story goes that, on February 13, some person or persons with a Swiss bank account bought 2,553 Heinz June $65 calls (255,300 shares), with the stock at just over $60, for $0.30 – $0.40 per share (around $90,000 total). The next day, Heinz announced that it was being bought for $72.50, the calls went to ~$7.33, and he/she/they made almost $1.8 million on paper. That’s a one-day return of 1,979%, or approximately Error 1 annualized.1

Which is pretty good! Except those gains are on paper, and that paper has been impounded by a federal judge at the SEC’s request, because that story is pretty much too shady not to be insider trading. But what I just told you is the whole story that the SEC appears to know: there’s no proof that it’s insider trading as opposed to just fabulously lucky trading. When I win the MegaMillions next week my one-day return will be considerably in excess of 1,979%, and no one will have leaked the winning numbers to me in advance, as far as the SEC knows anyway. Though it is suspicious that volume in the HNZ $65 calls was up just a smidge that day: Read more »

  • 01 Feb 2013 at 5:16 PM

The Ballad of Roomy Khan

By Jon Shazar

Life is terribly unfair. You help bring down Raj Rajaratnam and get yelled at by a defense lawyer during another insider-trading trial, but you tell a few white lies, destroy some evidence, warn some of your friends—including the only fugitive in the whole insider-trading crackdown—that the Feds are on to them and perjure yourself a little, and you don’t get to get away with your second insider-trading conviction. Read more »

  • 25 Jan 2013 at 12:25 PM

Doug Whitman is Sorry

By Jon Shazar

Sorry that he is going to prison. Because he certainly doesn’t sound—through counsel—like he’s sorry about the insider-trading that he was convicted of in August. Read more »

  • 22 Jan 2013 at 5:41 PM

Rajat Gupta: My Buddy Raj is a Big, Fat Liar*

By Jon Shazar

All things considered, Rajat Gupta would still prefer not to go to jail. Read more »

  • 17 Jan 2013 at 11:48 AM

SEC Insider Trading Investigation Reveals SEC Is Really Good At Insider Trading Investigations, Anyway

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Sheelah Kolhatkar’s cover story today in Bloomberg BusinessWeek about the SEC’s hunt to capture Steve Cohen is pretty amazing, and depending on your priors will leave you impressed or infuriated or both with the SEC. I vote both, but I always vote both.

The core of it is the story of how Sanjay Wadhwa, a senior enforcement lawyer at the SEC, got a tip from FBI agent B.J. Kang “that something big might have gone down during the summer of 2008 at SAC Capital,” though “It’s not clear whether Kang was motivated by information or intuition.” This nebulous tip led Wadhwa to research all previous SEC referrals about SAC. One that he found was a “multipage [September 2008] letter from NYSE Regulation … [that] said that someone from RBC Capital Markets had pointed out evidence of a market-moving information leak about Elan. ‘If there was a leak of information,’ the letter read, ‘it was probably during the ICAD [International Conference on Alzheimer’s Disease] conference,’ when doctors and investors would have been mingling and socializing.” Good tip!

This thesis turned out to be incorrect, but the letter did prompt the SEC to launch one of its largest investigations. It would end up issuing 140 subpoenas and amassing 2 million pages of documents as it built a case that kept leading in the direction of SAC Capital. … They tried to piece together an explanation for the astonishing amount of money SAC had made trading Elan. … The initial stages involved painstaking work: The firm’s trading records were a jumble of activity with nothing broken out. It was also difficult to discern which of SAC’s 900 employees they should focus on. …

After sifting for months through every phone call to SAC from anyone connected to Elan, the SEC team pinpointed Martoma and his source, a neurologist and Alzheimer’s expert named Dr. Sidney Gilman, who worked as a consultant to hedge funds through Gerson Lehrman. … As they tracked Martoma further back in time, a pattern emerged: Over the course of 2007 and 2008, Martoma and Gilman had spoken every time an Elan safety monitoring committee held a meeting.

Eventually they brought the case to prosecutors who arrested Martoma. Given the public information – mostly from the SEC and prosecutors at this point, but still – it’s pretty easy to believe that the SEC and prosecutors have Martoma dead to rights; Gilman has told prosecutors that he gave Martoma tons of inside information and Martoma then traded on it. So this really is – apparently – the story of a dogged team of investigators pursuing a thin lead and, through long hours of rigorous detective work, actually catching a criminal. Not Steve Cohen, but someone one level removed from him.

That is impressive. It’s hard dogged work; I am depressing myself just thinking about reading phone records for months on end. They get points for, like, the pure arete of it.

But it also sucks, doesn’t it? Read more »

  • 10 Jan 2013 at 1:57 PM

Ex-SAC Analyst Spared Prison, Still Faces The Wrath of Cohen

By Jon Shazar

Take note, insider-traders and those who might be accused of it in spite of their innocence: If you wear a wire and finger every single person you’ve ever known, you don’t have to go to jail.

Wesley Wang, the former SAC analyst who helped convict one former boss and is probably helping to build cases against his bosses at SAC and Trellus Management, will get to keep doing so from the comfort of his northern California home. Read more »

Expert: Hedge Funds Unlikely To Be Thrilled By Rule Requiring Them To Rat Out Employees Engaging In Securities Fraud, Other Criminal Activities On Their Watch

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U.S. financial regulators are pushing to turn hedge funds into informers on the white collar crime beat. The Financial Crimes Enforcement Network (FinCEN) is working on a rule that would require U.S. hedge funds to file formal reports notifying U.S. authorities of any suspicious trading by employees or outside parties, the regulatory agency said. The rule being crafted by FinCEN, part of the Treasury Department, would force the $2 trillion hedge fund industry to police itself in much the same way banks, brokerages and mutual funds are required to do by filing suspicious activity reports (SARs) with the unit. Steve Hudak, a FinCEN spokesman, said a proposed rule for the hedge fund industry could be filed for public comment some time in the first half of this year. But the rule, which would cover activities such as insider trading and money laundering, will force funds to spend more money on building out their compliance and legal departments. Hedge fund lawyer Ron Geffner said he expects many in the industry will oppose the new rule as being both intrusive and costly. [Reuters via Dealbook, FINalternatives]

  • 04 Jan 2013 at 11:09 AM

SEC: It’s Not Like Warren Buffett’s Right-Hand Man, Who Was In Charge Of Finding Companies To Acquire, Had Any Unusual Insight Into What Companies Warren Buffett Might Acquire

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The SEC probably came to the right decision in not taking any action against David Sokol but he’s still a delightful insider trading puzzle. Sokol, you’ll recall, is a former Berkshire Hathaway executive and Warren Buffett heir presumptive who was fired because he bought $10mm of Lubrizol stock, then pitched the company to Buffett without telling him that he (Sokol) had just bought a bunch of the stock,1 and then made $3mm when Buffett ended up buying all of Lubrizol at a premium. Here are, to a first not-legal-advice approximation, some things that are probably true:

  • If Buffett had (1) decided to buy Lubrizol and (2) bought $10mm of Lubrizol stock for Berkshire’s trading account,2 and then (3) Berkshire approached Lubrizol and negotiated a deal: not insider trading!
  • If Sokol had (1) convinced Buffett to buy Lubrizol and (2) bought $10mm of Lubrizol stock for his personal account, and then (3) Berkshire approached Lubrizol and negotiated a deal: insider trading!

The difference is not the insideriness – Buffett/Berkshire are more insidery, or have more material nonpublic information, than Sokol – but rather the misappropriation of that material nonpublic information. If Berkshire trades on Berkshire’s plans, that’s sort of an epistemological necessity. If Sokol trades on Berkshire’s plans, when he has some duty not to – if, for instance, Berkshire has policies requiring him to keep its plans confidential – then that’s insider trading.

But instead, it appears that the order of operations was (1) Sokol bought the stock, (2) Sokol convinced Buffett to buy Lubrizol, and (3) Berkshire approached Lubrizol and negotiated a deal. Sokol wasn’t trading on Berkshire’s plans: he was trading on his plans to convince Berkshire to buy Lubrizol (and, probably, to convince Lubrizol to be bought).3

And those plans were probably not material, in that they were too hazy and far removed from an actual deal. Here is DealBook: Read more »

  • 03 Jan 2013 at 1:42 PM

Mathew Martoma Has No Idea What The Government Is Talking About

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…vis–à–vis their insider trading charges against him (the former SAC Capital portfolio manager maintained his innocence today, pleading not guilty to turning material non-public information about clinical drug trials passed onto him by his doctor friend into profit). In related news, Martoma failed to give the Feds their Christmas wish, i.e. turning on the Big Guy already. [Bloomberg, NYP]

  • 18 Dec 2012 at 6:21 PM

Has Steve Cohen Started Wearing A Ping Jiang Mask While Walking The SAC Trading Floor, White Board Marker In Hand?

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Unclear but, based on recent reports, very possible. If you can come up with another idea re: how the “intimidating Cohen has become even more intimidating” in the wake of MartomaGate, we’re all ears. Read more »