Seven Fun Ways To Commit Insider Trading

There have been several high-profile insider trading cases recently. I can’t do justice to the facts of all the recent cases, but here’s a quick sampling of some of the more interesting cases.

1.         Use a Facebook Friend.  Badin Rungruangnavarat, who worked for a Thai plastics company, recently settled SEC charges against him for $5.2 million. The SEC froze his assets a few months ago, accusing him of insider trading. According to the SEC, he had a Facebook friend who worked for a Thai investment bank advising a Chinese food processor about a possible purchase of Smithfield Foods. When the sale of Smithfield (to another Chinese company) was announced, Mr. Rungruangnavarat apparently reaped profits of 3,400%.

2.         Get Played “Like a Finely Tuned Piano,” But in a “Classy Way.” As part of the Raj Rajaratnam insider trading investigation, an alleged tipster at Akamai Technologies was charged by the SEC with insider trading. Kiernan Taylor apparently gave information to Danielle Chiesi (an analyst for New Castle Funds who is now in prison after pleading guilty to insider trading) and also traded on inside information. In a wiretap played at Mr. Rajaratnam’s trial, Ms. Chiesi bragged to the Galleon manager that she had inside information from someone at Akamai and “I played him like a finely tuned piano.” Mr. Rajaratnam called to thank Ms. Chiesi for the Akamai tip, saying that she had obtained the information “in such a classy way.”

3.         Use a Unicorn—and Your Brother. A former executive vice president and President of Global Business Operations for Qualcomm, Inc. was indicted for insider trading in Qualcomm and Atheros Communications stock. Jing Wang allegedly used a secret brokerage account and overseas shell companies (one was called Unicorn Global Enterprises) to hide investment profits. He worked with his brother, a Chinese citizen, to obscure the fact that Mr. Wang was the true owner of the entities. He traded on information he learned at Qualcomm about Qualcomm’s possible purchase of Atheros as well as its plan to pay a dividend on outstanding stock.

4.         Have Tipsy Lawyer Friends. The SEC filed an insider trading lawsuit against Tibor Klein, who is an investment advisor who bought shares of King Pharmaceuticals, right before it was purchased by Pfizer in a $3.6 billion deal in 2010. Mr. Klein allegedly learned about the deal from a friend of his who was a lawyer at a Washington, DC law firm. The lawyer from Hunton & Williams was not charged in the lawsuit. He apparently represented King Pharmaceuticals in separate litigation that ended in the summer of 2010. Mr. Klein and the lawyer were personal friends. The complaint alleged that the lawyer “drank several glasses of wine and became intoxicated.” He then supposedly said “It would be nice to be King for a day.” Mr. Klein then traded on King Pharmaceutical stock.  (I’m at a loss to see how that statement discloses inside information, so it will be interesting to see how the case plays out.)

5.         The Old-Fashioned Way—Have Friends Who are Executives In Other Companies.  Michael Van Gilder was sentenced to five years’ probation for his role in an insider trading scheme. He is the former CEO of Van Gilder Insurance Corp.  He pleaded guilty to insider trading of shares in Delta Petroleum Corp.  Van Gilder allegedly received insider information from the former CEO of Delta, Roger Parker.  Parker apparently gave Van Gilder several insider tips, including that a private investment firm, Tracinda, was contemplating a large equity investment in Delta.  Based on these tips, Van Gilder allegedly bought Delta shares and told his relatives about the tips. He earned nearly $110,000 from the trades. All in all, though, the penalty here was not very severe, so Mr. Van Gilder should thank his lawyers for the deal.

6.         Make the Government Work For It.  David Brooks is the former CEO of DHB Industries, which provided body armor to U.S. military and law enforcement personnel. He was convicted of 14 counts of conspiracy, mail and wire fraud, securities fraud and obstruction of justice. The insider trading charge was not even Mr. Brooks’ biggest concern. The government painted him as a someone who looted his own company for personal gain, including the purchase of a $100,000 belt buckle, and engaged in conduct to hide his wrongdoing from the SEC by submitting false reports and lying to auditors. But Mr. Brooks did not make it easy for the government—he was convicted after an eight-month trial in Long Island.

7.         Advise an Investment Bank’s CEO. The SEC charged Cedric Canas Maillard with insider trading. Mr. Canas was formerly a high-ranking official at Banco Santander SA. Mr. Canas served as the executive advisor to the CEO of Banco Santander and learned that Banco Santander had been asked to serve as the investment bank for BHP Biliton (the mining company) to purchase Potash Corporation (the producer of fertilizer minerals). Mr. Canas tipped a close friend about the upcoming acquisition and also traded himself in Potash securities.

 

This entry was posted in Conviction After Jury Trial, Insider Trading, SEC Investigation, SEC Settlement, Securities fraud, Sentencing. Bookmark the permalink.

One Response to Seven Fun Ways To Commit Insider Trading

  1. Marc Denoyer says:

    These are among the some of the more interesting cases. I really liked it. Keep posting.

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