Among recent enforcement actions, the SEC fined Rajat Gupta $13.9 million for illegally tipping Raj Rajaratnam with inside information.
Also, Barclays and four former traders have been assessed a combined $487.9 million in fines and penalties by the U.S. Federal Energy Regulatory Commission (FERC) for their role in the alleged manipulation of energy markets, and the SEC stepped in with an emergency asset freeze and charges against an unregistered money manager and his companies in Texas for engaging in an illegal foreign currency exchange trading scheme.
Gupta to Pay $13.9 Million for Illegal Tipping
The SEC announced that it has obtained a $13.9 million penalty against Rajat Gupta, who, as a former Goldman Sachs board member, illegally passed inside information to former hedge fund manager Raj Rajaratnam. The agency also said that Gupta is permanently barred from serving as an officer or director of a public company.
Gupta had passed along confidential information about Berkshire Hathaway’s $5 billion investment in Goldman Sachs, as well as nonpublic details about Goldman’s financial results for the second and fourth quarters of 2008, to Rajaratnam. The latter was penalized a record $92.8 million penalty for insider trading after making use of inside information.
In a parallel criminal case, Gupta was convicted in June 2012 of one count of conspiracy to commit securities fraud and three counts of securities fraud. He was sentenced to two years in prison followed by a year of supervised release, and also subject to a criminal fine of $5 million.
Barclays, Four Former Traders Fined in Energy Price Manipulation
FERC has announced that Barclays and four former traders must pay fines and penalties of a total of $487.9 million after they allegedly manipulated energy markets in the western U.S. from November 2006 to December 2008. The traders made transactions in fixed-price products, often at a loss, according to the agency, so that they could move an index to benefit the bank’s other bets on swaps.
Barclays is to pay $435 million in penalties; Scott Connelly, former head of its North American power-trading desk, must pay $15 million, and former Barclays traders Daniel Brin, Karen Levine and Ryan Smith have each been fined $1 million. The $453 million in civil penalties must be paid to the U.S. Treasury within 30 days, according to the order from FERC, and the bank must also fork out $34.9 million in profits, to be distributed to programs that help low-income homeowners pay energy bills in California, Arizona, Oregon and Washington. The Barclays fine is higher than the 290 million pounds ($438 million) it was assessed for its role in manipulating the London interbank offered rate (LIBOR). Barclays plans to contest the fine, with Barclays spokesman Marc Hazelton saying in a statement, “We believe that our trading was legitimate and in compliance with applicable law. We intend to vigorously defend this matter.”
Hazelton added that the bank regards the fine as without basis, and the FERC order to be a “one-sided document, and does not reflect a balanced and full description of the facts or the applicable legal standard.”
The agency, on the other hand, described the evidence as “demonstrate[ing] that the intentional amassing of the positions and trading to influence price were not based on normal supply and demand fundamentals, but rather on the intent to effect a scheme to manipulate the physical markets in order to benefit the financial swaps.”