FORMER TECH COMPANY EXECUTIVE CHARGED IN RAJARATNAM INSIDER TRADING SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Former Technology Company Executive for Role in Rajaratnam Insider Trading Scheme

On September 20, 2013, the Securities and Exchange Commission charged a former executive at a Massachusetts-based technology firm for illegally tipping non-public information about the company’s financial predicament as part of the insider trading scheme operated by now-imprisoned Galleon Management hedge fund founder Raj Rajaratnam.

The SEC alleges that Kieran Taylor, who was the senior director of marketing for Akamai Technologies, illegally tipped his close friend – hedge fund portfolio manager Danielle Chiesi – with confidential information about the company’s plans to lower its revenue guidance for 2008.  Chiesi in turn tipped Rajaratnam with the non-public information so they and others could trade ahead of the negative news and make millions of dollars in illegal profits.  Taylor also traded on the non-public information by selling 2,500 shares of Akamai stock that he held in a personal brokerage account to avoid losses of $20,635.

Taylor, who lives in New York, New York, has agreed to settle the SEC’s charges by paying more than $145,000 and being barred from serving as an officer or director of a public company.  The settlement is subject to court approval.

According to the SEC’s complaint against Taylor filed in federal court in Manhattan, he obtained confidential information in July 2008 from internal company sources indicating that Akamai would fall short of previous revenue projections it made publicly.  Akamai was planning to update its revenue guidance for 2008 when it announced its second quarter financial results on July 30.  Based on this inside information, Taylor sold his Akamai stock in the days leading up to the announcement.  Taylor also tipped Chiesi, a lifelong family friend who was then a portfolio manager at hedge fund advisory firm New Castle Funds.  Chiesi then prompted New Castle to short sell Akamai stock.

According to the SEC’s complaint, the inside information leaked by Taylor continued to make its way around the Rajaratnam insider trading circle. Chiesi tipped other hedge fund managers including Rajaratnam with the inside information so Galleon Management and other firms could short Akamai stock.  Chiesi called Rajaratnam and relayed what she had learned from Taylor, noting that Akamai was “going to guide down a lot” at the company’s upcoming quarterly earnings announcement.  Chiesi similarly provided Taylor’s Akamai information to another friend, Steven Fortuna of the hedge fund advisory firm S2 Capital.  Chiesi, Rajaratnam, and Fortuna collectively shorted hundreds of thousands of shares of Akamai stock based on the non-public information illegally tipped by Taylor.  Their hedge funds consequently reaped approximately $10 million in illicit profits. 

The SEC charged Rajaratnam and Chiesi with insider trading in October 2009, and Fortuna was charged with insider trading a month later.  The SEC has charged a total of 34 firms and individuals in its Galleon-related enforcement actions, which have exposed widespread and repeated insider trading by numerous hedge funds as well as traders, investment professionals, and corporate insiders located throughout the country.  The insider trading occurred in the securities of more than 15 companies for illicit profits totaling more than $96 million.

The SEC’s complaint charges Taylor with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933.  Taylor agreed to pay $20,635 in disgorgement, $4,190.26 in prejudgment interest, and a $120,635 penalty.  Without admitting or denying the charges, Taylor also agreed to be barred from serving as an officer or director of a public company for five years, and to be permanently enjoined from future violations of these provisions of the federal securities laws.

SEC CHARGES TWO TRADERS IN SPAIN WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Two Traders in Spain with Insider Trading Ahead of BHP Acquisition Bid

On July 30, 2013, the Securities and Exchange Commission charged a former high-ranking official at Madrid-based Banco Santander S.A. and a former judge in Spain with insider trading based on non-public information about a proposed acquisition for which the Spanish investment bank was acting as an advisor.

The SEC alleges that Cedric Cañas Maillard, who served as an executive advisor to Banco Santander's CEO, learned confidentially that the investment bank had been asked by one of the world's largest mining companies, BHP Billiton, to advise and help underwrite its proposed acquisition of Potash Corporation, one of the world's largest producers of fertilizer minerals. In the days leading up to a public announcement of BHP's bid, Cañas purchased Potash contracts-for-difference (CFDs), which were highly leveraged securities not traded in the U.S. but based on the price of U.S. exchange-listed Potash stock. The CFDs mirrored the movement and pricing of that stock. Cañas also tipped his close personal friend Julio Marín Ugedo about the potential acquisition and advised him to purchase Potash stock. Cañas and Marín sold their Potash securities after the public announcement for illicit profits of nearly $1 million combined.

The SEC's enforcement action against Cañas and Marín arises from its continuing investigation into suspicious Potash trading ahead of the Aug. 17, 2010, public announcement of BHP's acquisition bid. A former Banco Santander analyst agreed to pay more than $625,000 to settle insider trading charges by the SEC.

According to the SEC's complaint against Cañas and Marín filed in U.S. District Court for the Southern District of New York, Australia-based BHP made an unsolicited $38.6 billion offer to purchase all of the stock of Canada-based Potash for $130 per share in cash. On a number of occasions between August 5 and August 17, Banco Santander's CEO and at least three other bank executives discussed the status of BHP's proposal with Cañas. On August 9, one executive informed Cañas that the $10.5 billion financing commitment requested by BHP had been approved by Banco Santander's executive committee. On August 11, Cañas attended a lunch meeting during which bank executives discussed the Potash acquisition, including the timing of the deal.

The SEC alleges that Cañas purchased 30,000 Potash CFDs from August 9 to August 13 based on material, non-public information he learned about BHP's offer to acquire Potash. Cañas liquidated his entire CFD position in Potash following the August 17 public announcement for an illicit profit of $917,239.44. Cañas also communicated frequently with Marín that month, and Marín has admitted that he and Cañas discussed investing in Potash prior to his purchase of 1,393 shares of Potash common stock through two Spain-based brokerage accounts. By trading Potash stock based on material, non-public information, Marín generated net trading profits of $43,566 (a 28.47 percent return) in just one week.

The SEC's complaint alleges that Cañas and Marín violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3. The SEC's complaint seeks disgorgement of ill-gotten gains with prejudgment interest, financial penalties, and orders of permanent injunction against Cañas and Marín.

ACCOUNTANT TIPSTER OF NON-PUBLIC INFORMATION

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

On August 28, 2012, the Securities and Exchange Commission filed a civil injunctive action in the Northern District of Georgia against R. Jeffrey Rooks ("Rooks"), a Griffin, Georgia based CPA. The Commission alleges that Thomas D. Melvin ("Melvin"), a Griffin, Georgia based CPA and partner of Rooks, disclosed material non-public information about the pending tender offer for Chattem, Inc. ("Chattem") securities to Rooks. The Commission also alleges that Rooks tipped one other individual. The Commission further alleges that Rooks traded in the securities of Chattem based on that material non-public information and caused the other individual to also trade.

According to the Commission’s complaint, on December 21, 2009, Sanofi-Aventis ("Sanofi"), a French pharmaceutical company, announced its intent to make a tender offer for Chattem, a Tennessee-based distributor of over-the-counter pharmaceutical products, at the price of $93.50 per share ("Announcement"). Shares of Chattem closed 32.60% higher on the day of the Announcement than the prior trading day’s close of $69.98 and volume increased more than 3,000% to 10.3 million shares.

The Commission alleges that in early December 2009, several weeks before the Announcement, an independent board member of Chattem who owned Chattem options that would automatically exercise in the event of an ownership change at Chattem, initiated a series of confidential conversations and meetings with his longtime accountant, Melvin, to discuss potential methods of ameliorating the effect of an acquisition of Chattem on his tax liability. The Chattem board member told Melvin sufficient facts such that, given Melvin’s knowledge of the board member’s affairs, Melvin would have clearly known that the board member was discussing Chattem. Melvin and the Chattem board member also discussed the price impact of the tender offer on the board member’s options.

The Commission further alleges that Melvin misappropriated material non-public information regarding the impending tender offer for Chattem securities. Within days of his first meeting with the board member, Melvin disclosed material non-public information about the impending tender offer to Rooks. Rooks traded in Chattem securities based on the material non-public information disclosed by Melvin, and Rooks caused another individual to trade based on that information.

Rooks has agreed to settle the Commission claims against him by consenting to the entry of a final judgment providing permanent injunctive relief under Sections 10(b) and 14(e) of the Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder and by agreeing to pay disgorgement of $18,482.14, prejudgment interest of $1,432.68, and a penalty of $4,620.54. The terms of Rooks’ settlement reflect credit given to him for his cooperation and substantial assistance to the investigation. Rooks neither admits nor denies the Commission’s allegations, and his settlement is subject to court approval.