The Securities and Exchange Commission was formally charged six men in an insider trading case.
The group includes Anthony Longoria, a former manager at AMD, as well as Daniel DeVore, a manager at Dell as well as Marvell consultant Winifred Jiau, Flextronics executive Walter Shimoon and two employees of investment research firm Primary Global.
Longoria, Shimoon as well as the primary Global employees were arrested in an FBI sting back in December. The original accusation involved passing on confidential product information in exchange for money to Primary Global. These new SEC charges apparently stem from new findings from an ongoing investigation as the organization alleges that Longoria, DeVore, Jiau and shimoon “obtained material, non-public confidential information about quarterly earnings and performance data and shared that information with hedge funds and other clients of PGR who traded on the inside information.” According to the SEC, the illegally provided information resulted in profits in the amount of about $6 million. “Company executives and other insiders moonlighting as consultants to hedge funds cannot blatantly peddle their company’s confidential information for personal gain,” Robert Khuzami, director of the SEC’s Division of Enforcement, said in a statement.
According to the SEC, Longoria collected more than 130,000 in consulting fees from primary Global, while DeVore was paid about $145,000, Shimoon $13,600 and Jiau $200,000. The complaint filed by the SEC asks to prevent Longoria, Shimoon and DeVore from acting as an officer or director of any registered public company, to repay any gains including interest and pay additional penalties. Similar cases in the past have also resulted in jail time.
By Stephen Grocer
Seems Qualcomm’s bid to buy Atheros was one piece of information about Atheros that didn’t leaked.
Atheros and other semiconductor companies such as AMD, Marvell Technology, Broadcom and Intel have been embroiled in the insider trader probes the past two years.
Atheros’s name has come up twice, in fact. One of its executives tipped hedge fund manager Ali Far to the firm’s financial performance for the fiscal quarter ended in December 2008. In the spearate but related “expert network” probe, Don Ching Trang Chu, an employee at Primary Global Research, allegedly provided inside information about Atheros directly to Richard Choo-Beng Lee, who was a cooperating witness in the Galleon case and co-founded Spherix Capital with Far.
So was there any suspicious Atheros trading before last week’s deal?
The short answer: No.
Atheros’s shares opened the day at $37.14 and were trading at $37.18 at 3 p.m. when the New York Times broke the news of an impending deal. As the chart below shows, it shares did not surge until after the news came out. Often in recent years, there is a jump in shares of a target company in the days before a transaction is announced.  For example, Merck’s acquisition of Schering-Plough. Shares and options, which had been languishing for more than a year, had spikes in the days before the $32.6 billion offer.
What about the options market? Deal Journal colleague Brendan Conway reports
In the stock-options market, the big Atheros action came only after the first reports of the deal. There were dribs and drabs of trading activity Monday and then a tidal wave of volume on Tuesday afternoon that continued into Wednesday.
In the options market, a favorite venue for traders who make speculative takeover bets, it’s always possible that some of the dribs were the work of traders acting on inside information. But, as in the stock market, market participants weren’t crying foul the way they often do when others have acted illegally on their knowledge.
NEW YORK – A FEDERAL judge demanded the government explain itself on Wednesday for eavesdropping on phone calls between an insider trading defendant and his wife in a case that was celebrated for its use of wiretaps.
US District Judge Richard Sullivan in Manhattan ruled in favour of the government’s right to wiretap insider trading suspects, but drew the line at the private chats between a husband and wife, saying it was the only area where he believed some suppression of the evidence might be warranted. He was the second judge to rule in favour of wiretap evidence in insider trading cases.
Judge Sullivan ordered the government to respond in writing to claims by a lawyer for defendant Craig Drimal that 13 per cent of his time on phones involved chats with his wife, including ‘deeply personal conversations about private marital matters.’ Drimal has pleaded not guilty.
Prosecutors have described the prosecution that resulted in Drimal’s 2009 arrest as the biggest hedge fund insider trading case in history. Among defendants is Raj Rajaratnam, a one-time billionaire founder of the Galleon group of hedge funds who has pleaded not guilty and insisted any trades he made were based on publicly known information. Prosecutors say the insider trading resulted in more than US$50 million (S$64.6 million) in profits.
The government began wiretapping Drimal, a former Galleon trader, in November 2007. His lawyer, Janeanne Murray, said in court papers that 98.2 per cent of the calls captured by the government and 97.4 per cent of the call-minutes involved non-pertinent conversations.
Ms Murray accused the government of a ‘cavalier disregard for marital privacy,’ saying investigators were required to discontinue monitoring if they discovered that they were intercepting a personal communication solely between Drimal and his wife. — AP
NEW YORK, Jan 6 (Reuters Legal) – The recent flurry of insider-trading arrests by the Manhattan U.S. Attorney has set Wall Street on edge. But if recent history is any guide, people found guilty of that crime tend to get off relatively easy, a Reuters Legal analysis suggests.
The analysis covers sentences imposed in 2009 and 2010 in 15 insider-trading cases brought by the U.S. Attorney in New York, representing virtually all those imposed in that court during this period. Of these, 13 sentences, or nearly 87 percent, were lighter than the terms prescribed by the U.S. Sentencing Guidelines — and seven of the sentences carried no prison time at all. The data from 2009, culled from a report issued last year by law firm Morrison Foerster, reveal that only one prison term, for 63 months, was issued for insider trading in 2009.
The routine practice of departing downward from the guidelines in insider-trading cases is particularly striking given the much lower rate at which judges in the New York federal court typically do so. According to U.S. Sentencing Commission statistics from fiscal 2009, New York federal judges departed downward from the guidelines in 57 percent of all cases, a full 30 percentage points lower than for insider-trading cases alone.
To be sure, several defendants charged in connection to Manhattan U.S. Attorney Preet Bharara’s massive insider-trading investigation have yet to be sentenced. In fact, two of the biggest targets — Galleon Group hedge fund founder Raj Rajaratnam and former New Castle Funds employee Danielle Chiesi — have not yet gone to trial. If either is found guilty, the guidelines would call for severe sentences: A maximum of 145 years in prison for Rajaratnam, whose trial is scheduled for February, and a maximum of 155 years for Chiesi.
Defense lawyers and former prosecutors have several theories about why insider-trading sentences tend to be lighter than those prescribed by the federal guidelines. For one, judges in the Southern District of New York, who oversee most of the insider-trading cases filed nationwide, depart downward from the guidelines at a more frequent rate than do judges across the country. According to the Sentencing Commission, in fiscal 2009 42 percent of all sentences nationwide were below the guidelines, compared to the 57 percent of all sentences issued by judges in the Southern District.
Another theory is that insider-trading defendants more commonly present the sentencing judge with glowing character references from friends, family, and colleagues, and these are often effective in persuading judges that a short prison term would be a sufficient deterrent. And unlike cases involving violent crimes or other types of white-collar crimes such as Ponzi schemes and shareholder fraud, insider-trading, which no doubt harms the investing public, typically doesn’t produce anyone to deliver heart-tugging victim-impact statements to the judge.
“You’re not going to get a big presentation about how peoples’ lives were ruined,” said Sam Buell, a professor at Duke University School of Law and a former federal prosecutor. “In insider-trading cases, where are the victims?”
DIFFICULT CALLS FOR JUDGES
At a sentencing hearing in February 2009, U.S. District Judge Alvin Hellerstein spoke about the difficulties he faced when sentencing individuals guilty of insider trading, which he described as “serious” but also “peculiar.” “It’s taking advantage of inside information, theoretically, at the expense of the public,” he said. “But there are no victims in this crime, at least not in any real sense.”
The case involved Alan Tucker, a former Pace University professor who in 2008 had pleaded guilty to conspiracy to commit securities fraud. Under the sentencing guidelines, Tucker faced 37 to 46 months. At the hearing, Judge Hellerstein struggled to find the appropriate punishment for Tucker, noting that Tucker was an accomplished academic and that he has a son who suffers from autism. Judge Hellerstein sentenced Tucker to six months in prison, but subsequently reduced the term to three years’ probation.
GUIDELINES NOT MANDATORY
The federal guidelines, which went into effect in 1987, were meant to bring more consistency to sentencing, and over the years, penalties have stiffened for white-collar defendants. The guidelines are based on a point system in which a first-time offender guilty of insider trading automatically gets eight points — or a prison sentence range of zero to six months. Additional points are based on the amount the defendant gained by the illegal trading — which can quickly add up to stiff sentences. A defendant who made more than $200,000, for example, faces between 33 and 41 months under the guidelines. For a gain of more than $1 million, the range increases to 51 to 63 months.
But under the Supreme Court’s 2005 decision in United States v. Booker, district court judges are no longer bound by the guidelines. Now, they’re only required to consult them.
Cooperation with the government in ongoing investigations may also help defendants receive lighter sentences than those called for by the guidelines. Last year, U.S. District Judge Sidney Stein sentenced a trader who faced 46 to 57 months under the guidelines to three years probation, citing his cooperation with the government.
But cooperation with the government is not always necessary to get a good deal. In the last two years, at least eight defendants received shorter sentences even though they did not cooperate with the government. Only two of the seven who received sentences below the guidelines had cooperated with the government.
James Gansman, a former Ernst Young partner accused of giving inside information to a female companion, fought his charges through a trial. After a jury convicted him in 2009, he faced a prison sentence of 41 to 51 months under the guidelines. But last year, U.S. District Judge Miriam Goldman Cedarbaum sentenced Gansman to one year and one day, noting that Gansman did not personally gain from the trading. Gansman has appealed the conviction.
Defense lawyers are now using these lighter sentences to try to set a new benchmark for insider-trading defendants who don’t cooperate with the government. In June, lawyers for Ali Hariri, a former executive at Atheros Communications who pleaded guilty to insider trading in connection with the government’s Galleon Group investigation, pointed to more than a dozen individuals who didn’t cooperate with the authorities yet who received sentences below the federal guidelines. Hariri’s lawyers argued that in order to “avoid disparity among defendants guilty of similar conduct,” Hariri should also receive a sentence below the guidelines, which call for a prison term of 24 to 30 months.
In November, U.S. District Judge Richard Holwell sentenced Hariri to 18 months in prison.
(Reporting by Andrew Longstreth; Editing by Eric Effron and Amy Stevens)
The hedge fund industry must be shuddering as Federal authorities in the U.S. release more details of its widening insider-trading investigation.
The latest complaint filed by prosecutors provides some unflattering excerpts of telephone conversations between a California-based technology consultant, Winifred Jiau, and two unnamed hedge funds.
According to prosecutors, Jiau was paid over $200,000 between September 2006 and December 2008 to provide the details of quarterly earnings reports before their public release.
During two telephone calls in May 2008, Jiau was recorded telling one of the hedge fund managers the exact details of Marvell Technology Group’s quarterly revenue, gross margin and earnings per share. For some inexplicable reason, one of the hedge funds kept digital recordings of their phone calls with Jiau that are now being used as evidence in the investigation.
Jiau has been charged with conspiracy and securities fraud. She stands accused of leaking inside information from Marvell as well as Nvidia Corporation to the hedge funds.
Investigators say one of the funds netted a profit of more than $820,000 by trading Marvell’s stock within the weeks immediately prior and after the company’s earnings report.
The latest arrest brings even further unwelcome attention to the hedge fund industry, which has managed to avoid regulatory oversight for decades. The FBI raided the offices of three hedge funds last month as part of its ongoing probe into insider trading.
The investigation has also shed light on the so-called expert-networking firms that allegedly conspired to provide confidential information to clients that included hedge funds.
According to various reports, Jiau, 43, had worked for Nvidia as a contractor for an unspecified period. A graduate of National Taiwan University with a Master’s degree from Stanford University, she had also been a consultant with one of the firms at the center of the investigation called Primary Global Research.
Four other consultants from the same firm had already been arrested; they include James Fleishman, Mark Anthony Longoria, Manosha Karunatilaka, Daniel Devore and Don Ching Trang Chu.
The recent slew of insider-trading cases stem from last year’s prosecution of the Galleon Group hedge fund founder Raj Rajaratnam. The Galleon case led to charges against 23 traders, which included another former hedge fund manager, Richard Choo-Beng Lee. In return for a more lenient sentence, Choo has reportedly been co-operating with authorities, and it was his relationship with Ching that ultimately led investigators to focus on Primary Global Research.
