Category Archives: Insider Trading

Expedia IT Specialist Charged with Insider Trading

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In an ideal world, companies would be able to trust their employees one-hundred percent. However, there are those who take advantage of their position within an organization to perform illegal activities. Unfortunately, that was the case with Expedia’s Jonathan Ly. Earlier this month, the SEC charged Mr. Ly, an information technology specialist in Expedia’s corporate IT services department, with insider trading.

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SEC Investigates California Insider Trading Ring

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Four individuals have been charged with insider trading by the Securities and Exchange Commission (“SEC”) in an alleged scheme involving two Silicon Valley-based companies.  Christian B. Keller (“Keller”), a financial analyst employed by Applied Materials, Inc. and later Rovi Corporation, is accused of using his access to confidential information about the companies to organize an insider trading ring. Keller, along with John Gray (“Gray”), allegedly enlisted Kyle Martin (“Martin”) and Aaron Shepard (“Shepard”) to participate by trading in their respective brokerage accounts. At the time Gray was an analyst at Barclays, Martin was employed at a Beverly Hills car dealership and Shepard worked as a car stereo installer.

The SEC alleges that while at Applied Materials, Inc. Keller used confidential information regarding a merger to trade ahead of Applied Materials acquisition of another company. Later, while at Rovie, it is alleged that Keller used confidential information regarding Rovi’s quarterly financial results to trade ahead of Rovi’s negative news announcements. The trades in question were executed in the accounts of Martin and Shepard and are thought to have generated $750,000 in illegal profits.

Gray and Keller tried to evade detection by trading in another person’s name, using prepaid disposable phones, and making structured cash withdrawals to share profits,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.  “Despite their careful planning, we were able to detect the suspicious trading and effectively use our cooperation program to expose their nefarious scheme.”

The four have agreed to settle charges without admitting to wrongdoing and pay penalties of approximately $1.7 million. Gray has also been barred from the securities industry and from participating in penny stock offerings. Keller has been barred from serving as an officer or director of a public company for 10 years.

Please reference our Jacko Law Group, PC Legal Risk Management Tip Practical Considerations For Preventing Insider Trading to learn more about insider trading and practical steps to protect your organization.

For more information on this and other related subjects, please contact us at info@jackolg.com  or (619) 298-2880.

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SEC Whistleblower Program Now In Effect

With its new whistleblower program officially becoming effective on August 12, 2011, the SEC launched a new webpage for people to report violations of the federal securities laws and apply for a financial award.

Prior to the enactment of the Dodd-Frank Act, the SEC only had authority to reward whistleblowers in insider trading cases. Now, the Dodd-Frank Act provides the SEC with the authority to pay financial rewards to whistleblowers who provide new and timely information about any securities law violation. Among other things, whistleblowers who provide original evidence of securities laws violations may be eligible to receive between 10% -30% of recovered funds if the information results in the recovery of at least $1 million.

Under the newly implemented program, whistleblowers may be employees or outsiders of the entity that they provide relevant information on. If the whistleblower is an employee of the firm, the Dodd-Frank Act provides for anti-retaliation provisions to protect these employees from the possibility of employer reprisals.  In light of the fact that employees may be incentivized to circumvent internal reporting chains, investment advisers, private fund managers, broker-dealers and other entities subject to the SEC’s rules should consider the following tips to increase the likelihood that possible violations are reported early and internally:

  • Create an environment of compliance that begins with a tone at the top;
  • Continuously train employees on regulatory compliance;
  • Establish an anonymous reporting hotline;
  • Maintain the confidence of those who report possible violations; and
  • Consult with counsel to determine the advisability of self-reporting discovered violations.

For more information, please contact Brent Cunningham, Associate Attorney, at 619.298.2880 or at brent.cunningham@jackolg.com.

 

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Massachusetts Adopts New Regulations Governing Use of Expert Networks

Beginning December 1st of this year hedge fund managers, private equity firms and investment advisers doing business in Massachusetts will need to have policies and procedures in place to address that state’s new regulations aimed at overseeing the use of expert network firms. Expert networks are intended to connect institutional investors, hedge funds, investment advisers and others with industry specialists and consultants, helping them gather data to make investment decisions.  The adoption of these regulations makes Massachusetts the first state in the Union to have rules overseeing these relationships.

Under Massachusetts’ newly adopted regulation, investment advisers, hedge funds and other entities that make use of expert networks will be required to certify that the expert network will not, and does not supply confidential information as part of its services.  Entities that use expert networks will also be required to describe the confidentiality and non-disclosure arrangements that govern their relationship with the expert networks.

The adoption of this new regulation is designed to thwart perceived abuses by hedge fund managers and investment advisers who gain and trade on inside information through the use of these expert networks.  Indeed, recent high profile insider trading cases have involved the misuse of expert networks.  For instance, Raj Rajaratnam, founder of the now defunct New York-based hedge fund Galleon Group, faces more than twenty years in prison for his recent conviction on insider trading charges that stemmed from his misuse of expert networks.

While the new regulation may not deter those bent on gaining and trading on insider information, it does put these individuals on notice and may serve as a tool regulators will use to initiate enforcement proceedings.

For more information, please contact Brent Cunningham, Associate Attorney, at 619.298.2880 or at brent.cunningham@jackolg.com.

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