If you are a hedge fund manager who goes by the name Steven A. Cohen, there are a few things you really don’t want to hear first thing in the morning. They include:
a) “You might not want to put that whiteboard marker in your mouth“
b) “The fleeces are on back order”
c) “Your ex-wife is in the lobby”
d) “There’s a photographer here who said he’s been authorized to shoot you wearing a king’s robe and crown for a set of playing cards”
e) “You’ve been outmaneuvered for the Toledo Mud Hens. But I hear the Binghamton Mets may be available.”
f) “One of your former employees told the FBI you regularly trade on material non-public information.”
No one has sodomized anyone with any foreign objects lately, the supplier got the message (“That shipment will be here in the next hour or you’ll find out what it’s like to be dragged down the BQE via Zamboni”) loud and clear, Patty C is sitting this round out, photoshoots have been banned, and baseball in general can go fuck itself, so the mood at 72 Cummings Point Road today can likely be attributed to this:
A former SAC Capital Advisors LP portfolio manager told the FBI it was “understood” that those assigned to give their best trading ideas to founder Steven A. Cohen would provide him with insider information, according to an agent’s notes of the conversation. The former fund manager, Noah Freeman, pleaded guilty to securities fraud in February 2011 after speaking to Federal Bureau of Investigation agents and federal prosecutors in New York in late 2010, in a so-called proffer session. Defendants use such sessions to determine whether to cooperate with the government against others. “At SAC Capital you were expected to provide your trading ideas to Cohen,” Freeman said, according to a Dec. 16, 2010, memo written by FBI Special Agent B.J. Kang. “Freeman and others at SAC Capital understood that providing Cohen with your best trading ideas involved providing Cohen with inside information.”
Doesn’t sound good! But before anyone launches himself into space in a rocket disguised as a Bob’s Big Boy statue, let’s stop to consider that: Read more »
SAC Capital Advisors LP, the hedge fund run by Steven A. Cohen, put portfolio manager Michael Steinberg on leave after he emerged as an unindicted co- conspirator in a $62 million insider-trading scheme, according to two people familiar with the matter…Steinberg, who worked at SAC Capital’s Sigma Capital Management unit, is the fifth person to be tied to the U.S. government’s insider-trading investigation while employed at the firm. He has been linked in court documents to the securities- fraud case of Jon Horvath, a former SAC Capital technology analyst that he supervised. Horvath told a federal judge in New York during his Sept. 28 plea that he was part of a group of analysts who passed nonpublic information to each other…SAC Capital said in a statement last week that it gave Horvath “the benefit of the presumption of innocence” and that it was “disappointed and angered” to learn that he admittedly violated the law and SAC Capital’s policies forbidding insider trading. [Bloomberg]
Back in May 2010, a Wells Fargo employee named Waldyr Da Silva Prado Neto got a hot tip that Burger King was going to be bought by private equity firm 3G Capital Partners. Realizing he was in possession of some valuable information, Da Silva Prado Neto did what any rational person with an elastic view of securities laws would, and shared the material non-public information with some clients and friends, making about $175,000 and also putting himself in the good graces of pal he tipped off, who probably promised to return the favor. DSPN used Portuguese to communicate the message that he had information that might be of interest (“If you are around call me at the hotel,” he emailed one customer. “I have some info…you have to hear this”), which seems pretty standard, given that he’s Brazilian, though at least one person at the SEC is pretty sure it was an attempt to throw regulators off the trail, not realizing the lengths the Commission will go to fight crime. Read more »
Remember, earlier this summer, when a whole bunch of banks were sued over allegations their employees manipulated Libor? And Bob Diamond, CEO of the first, and so far only, bank to settle with regulators, lost his job, as did a bunch of his colleagues? And it was suggested that Barclays’s offenses were but a drop in the bucket compared with those of UBS? And experts projected that this whole thing could cost the banks being investigated (of which there are many) tens of billions of dollars to make go away? And Nellie Diamond stopped Tweeting? As much fun as that’s all been, a lot of firms would like to avoid going through it again, and to that end, have asked their compliance teams to run some workshops teaching employees how to keep things on the straight and narrow.
For instance, while you might think that people would have mastered email by this point on the evolutionary chart– specifically, that it never goes away and might be read again– you would think wrong! So the point is being hammered home in remedial electronic correspondence classes, particularly to those who’d previously not seen an issue with writing stuff like, “Anything for you, Big Boy” as a response to the request “Can you manipulate Libor for me today when you’ve a sec?” Also on the schedule– mock happy hours for members of the staff who can never seem to remember the appropriate answer when they’re out at Punch Tavern and are asked about “Holly with the cans– you know, the one who did me a solid by shaving 45 basis points off our submission?” Read more »
A thing I used to do was go to companies and try to convince them to do various exotic flavors of share repurchase. This is in outline a thing that all bankers try to do – go to companies and (1) try to get them to do things and (2) if that’s going well, upsell to exotic flavors of those things – but the share repurchase angle is a challenging one because companies are universally and irremediably bad at share repurchase and everyone knows it. There are so many studies and they all basically say “you are dopes, stop buying back shares, you always buy at peaks and then sell at troughs, please for the love of God stop.” This is not really surprising: executives are by nature confident types, for one thing, so it’s a rare CEO who declines to buy his own stock on the grounds that it’s overpriced; for another, buyers buy things when they have lots of cash and feel rich, and shares are cheap when the issuer is running out of money and feels poor, so when the buyer and the issuer are the same you’ve sort of autocorrelated yourself into shittiness.*
Or so I thought. There is however an alternative explanation for why companies buy back shares that I have been giggling over for the last hour, and it is: because their managers are actually good at market timing and are sneakily insider trading for their own account through the corporation. Or so says Harvard Law professor Jesse Fried: Read more »
I haven’t been following the Doug Whitman case that closely but I got the vague impression that he wasn’t that guilty. Like, he did his research and thought it was his job to dig up information about public companies, he sought “color” rather than clearly-material hard numbers from executives, and he thought that when insider-trading-trial-Zelig Roomy Khan was saying things like “I am giving you illegal inside information” it was all a big joke, presumably of the you had to be there variety. That all sounds plausible-ish to me, though maybe not much more than that.
Anyway a jury disagreed and now he “faces a maximum possible sentence of 50 years in prison, though he is expected to receive far less than that,” and so I guess it’s time to fire up the old Insider Trading Sentencing Machine and see how much. He seems to have made “over $900,000,” he worked for a hedge fund, and he went to trial, which is all the machine needs to spit out its verdict.*
Which is a sort of frustrating fact about the machine. (And, of course, the actual sentencing regime it represents. The machine faithfully replicates the world, or has so far, more or less.) Here is how you – I, anyway – sort of want it to work:
The axes being (x) amount of money involved, (y) how guilty you are, and (z) how many years you spend in jail. Just going around being like “let’s insider trade, it’s awesome, later we’ll throw hard drives in dumpsters” should get you more time than looking for “color” from tipsters with no duty of confidentiality and occasionally semi-honestly getting, um, vivid lifelike color from tipsters with such duties. Sadly the way it works is more like this: Read more »
Baseball Hall of Famer Eddie Murray agreed to pay $358,151 to resolve U.S. regulatory claims that he reaped illegal profits from an insider-trading scheme involving his former Baltimore Orioles teammate Doug DeCinces. Murray made $235,314 in profits after Abbott Laboratories Inc. said in January 2009 it would acquire Advanced Medical Optics Inc. through a tender offer, the Securities and Exchange Commission said in an e-mail statement today. DeCinces and three others agreed to pay $3.3 million last year to settle SEC claims they reaped a total of $1.7 million, the agency said. [Bloomberg]
…Before losing his patience and wondering aloud what the hell she was good for if not bringing him hot tips. Read more »
Which, it turns out, were not very helpful. Read more »
Remember Matthew Kluger? To recap, he’s the mergers and acquisitions lawyer who spent two decades feeding inside information to convicted insider trader Garrett Bauer, that he picked up from partners at the six different law firms he worked at over the years. The operation, which included Kenneth Robinson, an old friend of Kluger who acted as the tips mule between MK and GB, went very smoothly for a very long time (17 years), and would have continued going smoothly had Robinson stuck with the plan instead of deciding to start making the same trades as Bauer, raising suspicion with SEC, which was watching the men and used “relationship analysis” to determine they were “part of the same trading scheme and had a common source: Kluger.” In March 2011, federal agents showed up to Robinson’s house and after thinking it over for a couple days, he decided to cooperate by giving prosecutors a step-by-step guide to how the scam operated, telling them Kluger’s name, and recording conversations with Kluger and Bauer in which the two said things like “I went right up to my apartment and I broke the phone in half and went to McDonald’s and put it in two different garbage cans” and “I can’t sleep. I can’t sleep. I’m waiting for the FBI to ride into my apartment” and “We have to get all the fingerprints off that money. Like you wearing gloves or something and wiping every bill down or something” and “There is no way [these cell phone conversations] could ever be recorded.”
Robinson was ultimately sentenced to 27 months in prison, Bauer got nine years (despite his 147 speeches about how insider trading is a bad idea on the college lecture), and Kluger was handed 12 years, beating Raj Rajaratnam for “the longest insider trading U.S. history.”
Recently, Kluger sat down with Bloomberg to offer a few more specifics re: how the scheme went down (“Sometimes it was a deal I was working on, sometimes it was a deal I heard being discussed in the office”; “I would call Ken and say ‘X/Y/Z company is considering a takeover of Q company”) but what he really wants to talk about? What was the biggest surprise and hardest punch to the gut in all of this? Is what it was like finding out that his buddies were stiffing him on cuts of their ill-gotten gains. Read more »
I was away last week and came back to find Libor scandals, soaring Spanish yields, Italo-Spanish bans on short selling, and also Yahoo!? is still terrible, and it’s like I never left. One thing that happened last week that’s a little new is an SEC insider trading lawsuit against Manouch Moshayedi, the CEO of a company called STEC that makes electronic doodads of some sort. Here is how the SEC explains the problem:
Washington, D.C., July 19, 2012 – The Securities and Exchange Commission today charged the chairman and CEO of a Santa Ana, Calif.-based computer storage device company with insider trading in a secondary offering of his stock shares with knowledge of confidential information that a major customer’s demand for one of its most profitable products was turning out to be less than expected.
“Insider trading in a secondary offering of his stock shares” sounded to me like he was doing nefarious secret trading around the secondary offering – maybe telling a friend to short before the offering was announced? – so I clicked through to the complaint. But, nope, the insider trading was just that he announced he was selling shares, and then sold them. You knew he was selling shares because he did a public offering, diligenced and underwritten by JPMorgan and Deutsche Bank, with a prospectus saying he was selling 9mm shares. (Actually he and his brother and COO were selling that much, combined.) And because when you know you are buying from the CEO of a company, you tend to want some sort of discount to last sale – because he probably knows some stuff you don’t about the company’s prospects – those shares went at a 9.2% discount to the previous close.
The problem is that he did in fact know something you didn’t, and didn’t tell you, and it seems to have been worth more than 9.2%. Read more »