Rajat Gupta continues to have a pretty good run in his insider trading case considering that he was caught on tape telling Raj Rajaratnam about Goldman board meetings 23 seconds after they occurred. Which you might think would be problematic. Yesterday the SEC dropped its administrative action against him, though it will probably re-file in federal court soon.
People having less good days include the Petersons, H. Clayton and Drew, who pled guilty to criminal insider trading in New York court today. H. Clayton was a director of Mariner Energy who told his son Drew that Apache was going to buy Mariner and that he should load up on the company’s stock. Not wanting to look obvious or anything, Drew didn’t buy in his own name, instead buying for his sister and “in the name of an investment club in which he participated with several friends.” Clever! Anyway the sister and investment club, which is called “Blind Seven LLC,” made about $150,000, which was nice for them.
Drew also had a friend whom the Justice Department refers to as “CC-2” and who just happened to run a Denver hedge fund. Let’s let the Justice Department tell us a bit about CC-2:
DREW PETERSON then telephoned CC2 and left a coded voicemail message informing him that he had confirmed that Mariner was being acquired. The next day, on April 13, 2010, and again on April 14, 2010, CC-2 caused the Hedge Fund to purchase additional shares and call options in Mariner stock.
On April 15, 2010, before the market opened, Apache and Mariner announced that Apache would acquire Mariner. Mariner's stock, which opened at approximately $18 per share, rose dramatically, and closed at approximately $26 per share. During the trading day, CC-2 caused his hedge fund, a personal account that he had used to purchase Mariner securities, and the accounts of two other individuals over which he had discretionary authority and had used to purchase Mariner securities, to sell all of their Mariner shares and options. The sales realized illegal profits of approximately $5 million. When DREW PETERSON spoke with CC-2 that day after the acquisition was announced and asked him if he had purchased Mariner stock, CC-2 falsely told him that he had not.
So to recap:
* Rajat Gupta, a director of a public company, leaks information about that company to a hedge fund manager who trades on it. Hedge fund manager makes $64 million, director makes $0. Hedge fund manager goes to jail; director gets a civil suit that he seems to be doing a pretty good job of winning.
* Clayton Peterson, a director of a public company, leaks information (through his son) about that company to a hedge fund manager who trades on it. Hedge fund manager makes $5 million, director makes $0, director’s son/daughter/investment club make $150k. Director (and son) get charged criminally and may be going to jail; hedge fund manager doesn’t even suffer the indignity of being named publicly.
Weird no? Also this week in insider trading news Cal Ripken Jr. predecessor Doug DeCinces and Hugh Hefner son-in-law William Marovitz got off with civil penalties for insider trading schemes that (1) were kind of obvious and (2) made them $1.2 million and $100k, respectively.
What’s the difference? Well for one thing, DeCinces and Marovitz had the good sense not to get caught in the Southern District of New York, where in addition to going after Raj and the Petersons, US Attorney Preet Bharara is leading a criminal crackdown on insider trading that will part Danielle Chiesi from her toxic dating life and Donald Longueuil from his North Face fleece for the next 30 months.
But that doesn’t explain why Rajaratnam is going to jail for maybe 20 years while Gupta hasn't been charged with anything, or why the Petersons are facing jail time while CC-2, if that is his real name, doesn't even seem to have to give back his $5 million. Gupta may just be avoiding charges by good lawyering. CC-2, on the other hand, may be avoiding jail the old fashioned way - by screwing the people who made him rich.