More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
The Securities and Exchange Commission on Tuesday amended its complaint against Richard Lee, a former portfolio manager at SAC Capital Advisors who the agency charged on July 25 with insider trading, to additionally charge Sandeep Aggarwal, the tipper of confidential information to Lee.
The SEC says that Aggarwal, a sell-side analyst, tipped Lee in advance of a July 2009 public announcement about an Internet search engine partnership between Microsoft and Yahoo.
Lee purchased large amounts of Yahoo stock in the SAC Capital hedge fund that he managed as well as in his personal trading account on the basis of the inside information.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York on Tuesday announced criminal charges against Aggarwal, who lives in India but recently returned to the U.S.
Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office, said in a statement that “Rather than rely on legitimate research methods, Aggarwal obtained confidential information from a close friend at Microsoft and passed it along to Lee knowing that he would likely trade on it.”
As a sell-side analyst, “Aggarwal knew the rules and yet he broke them, which is why he joins the growing ranks of those held accountable by the SEC for insider trading,” Wadhwa said.
The SEC alleges that Aggarwal learned confidential details about the significant progress of the Microsoft-Yahoo negotiations from his close friend at Microsoft on July 9, 2009, and he tipped Lee with the information during a telephone call the following day.
“When the information was reported in the media almost a week later, Yahoo’s stock price rose approximately 4%,” the SEC says. “SAC Capital and Lee reaped substantial profits from the Yahoo shares that he purchased after speaking to Aggarwal.”
According to the SEC’s amended complaint filed in federal court in Manhattan, Aggarwal covered both Microsoft and Yahoo for his research firm and regularly received periodic updates from his inside source at Microsoft. “Upon learning that Microsoft and Yahoo were potentially within two weeks of finalizing a deal, Aggarwal shared very specific details with Lee,” the SEC states. "Aggarwal assured him that the information came from a close friend at Microsoft who was reliable and accurate.”
The SEC’s amended complaint charges Aggarwal and Lee with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The amended complaint seeks a final judgment ordering Aggarwal and Lee to pay disgorgement of ill-gotten gains plus prejudgment interest and financial penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws.