Skip to main content

The Nomura VP Accused Of Insider Trading Really Made It Easy On The SEC

Let's give securities regulators a little more credit, OK?
  • Author:
  • Updated:

(Flickr user MIKI Yoshihito)

We know the SEC is understaffed. We know they've lost droves of top leadership. We know morale could improve. But if you're an investment banker looking to test the SEC's mettle with some insider trading, you're going to have to try a little bit harder than the Nomura VP who was charged Monday with three securities violations and one giant insult to the SEC's intelligence.

The defendant is Avaneesh Krishnamoorthy, a vice president in risk management at Nomura, according to a LinkedIn profile matching the description in the SEC complaint, which doesn't name the bank. His alleged misdeeds read like an Idiot's Guide to Insider Trading. In his position as risk manager, Krishnamoorthy was privy, allegedly, to confidential information on pending deals. These included the December 2016 acquisition of the publicly traded NeuStar LLC by private equity firm Golden Gate Capital. Here's a timeline, drawn entirely from the SEC's documents:

  • Nov. 23, 2016: Nomura circulates a document introducing Golden Gate's plan to buy NeuStar.
  • Nov. 25: A brokerage account – opened in 2015 in Krishnamoorthy's wife's name – adds 800 shares of NeuStar at around $25 apiece, as well as nine call options with a strike price of $25, expiring Dec 16.
  • Nov. 28: Nomura circulates a memo that confirms Golden Gate will buy NeuStar at $30.50 a share, representing a 22 percent premium.
  • The next two weeks: Wife's account adds a bunch more shares and call options, as does an IRA Krishnamoorthy opened – in his own name – the previous year.
  • Dec. 14: NeuStar announces acquisition. Stock shoots up 21 percent. Krishnamoorthy subsequently sells a bunch of call options and stock, earning around $48,000.
  • April 4: Finra knocks on Nomura's door.

It really doesn't get much simpler than that. There's nothing elaborate or subtle here. No plumber friends getting hot tips. No paper bags stuffed with cash. No posing as one's mother. Not even any juicy quotes thrown into the criminal complaint to get our dander up. Just a completely by-the-books insider scheme: (1) Learn some insider information; (2) buy some stock and out-of-the-money call options; (3) profits!

Come on, now. We can do better than this.



Nomura Bond Traders Evidently Missed SEC's 'No Litvaking' Rule

You can lie all you want, just please, for the love of god, don't fabricate an email!

(Getty Images)

Once Again: Do Not Insider Trade While Posing As Your Own Mother

Also, don't google “how sec detect unusual trade” while doing so.

After The STOCK Act It Will Still Be Legal To Trade On Congressional Inside Information*

Here's a sort of touching monologue from David Einhorn's call with Punch: If you’ve done the analysis, and come to the conclusion that on it’s own, the company is not going to make it, it makes all of the sense in the world to raise equity at whatever the price is, so that you can know that the company, you know, is – is going to make it. Now, what that brings to my mind though is, you know, obviously we haven’t done your analysis, we haven’t done -- signed an NDA; I don’t know that we’re going to sign an NDA, because we prefer to just remain investors, but from my perspective, and I’ll be just straight up with you, is that gives a lot of signalling value. And the signalling value that comes from figuring out the company has figured out that it’s not going to make it on it’s own is that we’ve just grossly misassessed the -- you know what’s going on here. And -- and that, that will cause us to have to just reconsider what we’re doing, which is not the end of the world to you. You will continue on even if we don’t continue on with you. You could sort of see why the FSA read that to mean that he was insider trading. Like ... (1) You have told me something with signalling value. Sorry - "a lot of signalling value." (2) I will now act on that signal. (3) Don't be mad. "Signalling value" sure sounds like it means "material nonpublic information," doesn't it? Now as we've discussed before, trading on that information would not be enough to make Einhorn guilty of insider trading in the US, though maybe it wouldn't be exactly a great idea here either. Why? Because in our weird but sort of sensible insider trading laws, it's just not illegal to trade on material nonpublic information. It's only illegal to trade based on material nonpublic information that was obtained in violation of some sort of duty of confidence. Since Einhorn didn't sign an NDA, he had no duty of confidence. And since the Punch CEO and bankers weren't tipping him for nefarious purposes, but were instead sounding him out on the company's behalf as a shareholder and potential investor in a new capital raise, they weren't breaching their duty of confidence. You could quibble with the details of that but it's basically the law here. In England not so much. That also seems to be the law for our friends in Congress, who recently passed a law making it illegal for them to insider trade, which is worrying some people who make their living from trading on Congressional inside information: