Among recent enforcement actions by the SEC were charges against the owner of an investment advisory firm for insider trading; against a former tech company executive for tipping in the Rajaratnam insider trading case; against an independent filmmaker for insider trading; against a former Qualcomm executive and his former financial advisor for insider trading; against two former bank executives for financial misstatements; against the former president of an investment firm for fraud; and against the founder of Left Behind Games and his friend in a revenue inflation scheme.
Advisor Charged With Insider Trading of Drug Firm
Tibor Klein, president of New York-based Klein Financial Services, was charged by the SEC with insider trading after he used confidential information about Pfizer’s planned acquisition of King Pharmaceuticals to make more than $300,000 by trading in both his own and client accounts in advance of the public announcement.
His friend Michael Shechtman, a South Florida stockbroker, was also charged after he made more than $100,000 on a tip from Klein.
The SEC said that Klein got the nonpublic information on the approaching August 2010 merger from an attorney client who worked on matters for King Pharmaceuticals. The first day the market opened after Klein learned the information, Aug. 16, he went on a stock-buying spree for himself and his clients. That gave him away; he hadn’t bought so many shares of a single stock in such a short time that whole year.
Klein also made repeated calls to Shechtman on Aug. 16 and again on Aug. 18. On the first date Shechtman opened an account to trade options, something he had never traded before, and on August 18 he bought 2,500 shares of King Pharmaceuticals stock and 300 call options in his personal account, and 2,400 shares in his wife’s Roth IRA account.
The announcement didn’t go public till Oct. 12; King Pharmaceuticals stock subsequently gained 39% and its trading volume soared 12,000% from the day before. Post-announcement, Klein sold his own and his clients’ shares, making profits of $328,375.02; Shechtman sold the stock and the options and brought in profits of $109,040.53.
The SEC seeks disgorgement of ill-gotten gains, financial penalties, and other penalties against the two.
Independent Filmmaker Charged With Insider Trading
Manhattan-based independent filmmaker Lawrence Robbins has been charged by the SEC with insider trading based on confidential information from his business partner John Michael Bennett about impending takeovers of two biotechnology companies, Millennium Pharmaceuticals and Sepracor.
Bennett and his friend Scott Allen, from whom he received the information, were previously charged in the scheme.
Allen learned the confidential information prior to the two acquisitions through his job at a global consulting firm that was advising the acquiring company in each deal. Thanks to his leaking the information to Robbins and Bennett, the latter two collectively spent tens of thousands of dollars acquiring call options in the companies, then made more than $2.6 million in illicit profits after the deals were publicly announced. Robbins used part of his proceeds to fund the independent film production business that he shared with Bennett.
Allen got the information on Millennium in mid-February 2008 when his firm began advising Japan-based Takeda Pharmaceutical Company during its negotiations with Millennium. On Feb. 27, he passed inside information about the deal to Bennett, who then shared it with Robbins. The two began stockpiling shares two days later, and when the announcement was made public on April 10, the 48% increase in share price brought Robbins $1.12 million in profits and Bennett more than $602,000.
Then, in May 2009, Allen participated in due diligence work for the Japanese firm Dainippon Sumitomo Pharma Co. (DSP) in connection with its impending acquisition of Sepracor. Again he shared what he knew with Robbins and Bennett, who went into action once more. This time they made more than $388,000 and $516,000 respectively.
Robbins has agreed to pay more than $1 million to settle the SEC’s charges: $865,000 in disgorgement and prejudgment interest and a $150,000 penalty. The settlement, subject to court approval, takes into account Robbins’ current financial condition.
The SEC’s case continues against Allen and Bennett, who have pleaded guilty in parallel criminal actions.
Ex-Qualcomm Exec, Advisor Charged With Insider Trading From Secret Offshore Accounts
Jing Wang, a former executive vice president and president of global business operations at Qualcomm, and his former financial advisor Gary Yin, a former registered representative at Merrill Lynch, were charged by the SEC with insider trading that brought the two more than a quarter-million dollars in profits.
Wang and Yin became friends in 2005 as members of the same church. When Wang discovered that Yin was an advisor, he asked him to manage his money, and in the beginning all accounts and transactions were cleared with Qualcomm, as required by Wang’s status as a company officer.
However, that changed in early 2006, when Wang approached Yin about hiding cash transactions. Yin suggested Wang create an entity registered in the British Virgin Islands (BVI) and use a non-U.S. citizen family member’s name as the beneficial owner; then he could open a brokerage account in the new entity’s name.
Yin helped Wang set up a secret account in the name of a BVI company called Unicorn Global Enterprises, with Wang’s older brother listed as owner. Yin also created a BVI-registered entity for himself, named it Pacific Rim and put it in his mother-in-law’s name. Then he opened a Merrill Lynch brokerage account for that entity, using it to hide funds that he was using for investments.
The two used the secret accounts to trade on material, nonpublic information that Wang learned as an executive at Qualcomm, including the news of a share repurchase program in 2010 that Qualcomm executives were not allowed to trade stock for.
Wang instead ordered Yin to use all the money in the Unicorn account to buy shares, which clued Yin in to the clandestine nature of the transaction; Wang had never bought Qualcomm stock on the open market in his Merrill Lynch accounts. So Yin, too, bought shares, and the two profited after the stock repurchase plan was announced along with the company’s quarterly dividend announcement.
Wang next took things a step further, using the proceeds from this event to buy up shares of San Jose-based Atheros Communications—a planned Qualcomm acquisition that was so secret it was referred to in the company as “Project Tango.” Wang told Yin to sell all the shares in the Unicorn account and get ready to use the money to buy Atheros shares. Then, after a Qualcomm board meeting in China at which the acquisition price of $45 per share was disclosed to attendees, Wang instructed Yin to buy as many Atheros shares as possible for between $34 and $35 a share — and while he was at it, buy some shares for himself, which Yin did in his own offshore account.
Wang’s next insider trading move was to capitalize on a favorable Qualcomm earnings report in advance of its announcement — something he did only four minutes after selling the Atheros stock, according to the SEC.
Altogether, Wang made more than $244,000 in illegal profits through his insider trading, and Yin made more than $27,000. But Wang eventually realized that his transactions could be traced, and asked Yin to delete the Unicorn trade records — something he couldn’t do. Wang also asked Yin to open a new offshore account and transfer the proceeds there as a means of distancing himself from the trades, and to take other actions, including making a trip to China to discuss the trades with Wang’s brother, who the two planned to say had made the trades.
The SEC’s complaint seeks disgorgement of ill-gotten gains plus prejudgment interest, financial penalties and permanent injunctions, as well as an officer-and-director bar against Wang.
Former Exec Charged With Tipping in Rajaratnam Case
Kieran Taylor, formerly senior director of marketing for Akamai Technologies, was charged by the SEC with illegally tipping hedge fund portfolio manager Danielle Chiesi with confidential information about the company’s plans to lower its revenue guidance for 2008.