The United States (US) Securities and Exchange Commission (SEC) has announced that SAC Capital Advisors affiliate and hedge fund advisory company CR Intrinsic Investors (CR Intrinsic) has agreed to pay over US$600 million in what the SEC says is the largest ever settlement of an insider trading case. The SEC stated that CR Intrinsic had been charged with participating in "an insider trading scheme involving a clinical trial for an Alzheimer's drug being jointly developed by two pharmaceutical companies".
The United Kingdom Financial Services Authority (FSA) has announced that a former futures trader has been sentenced to six concurrent four-year prison terms after being found guilty of as many counts of conspiracy to insider trading. According to the FSA, Richard Joseph received "confidential and price-sensitive information" from JP Morgan Cazenove print room manager Ersin Mustafa, to whom Mr Joseph also "transferred a substantial amount of money".
Former Goldman Sachs Group Inc (Goldman) director Rajat Gupta will pay the investment banking firm US$6.22 million to reimburse expenses arising from his criminal insider trading case. Mr Gupta was sentenced in June 2012 to two years imprisonment for leaking information obtained at Goldman board meetings in order to facilitate insider trades.
Last week, the Securities and Exchange Commission (SEC) froze a Goldman Sachs’ (Goldman) account after discovering trades that suggested insider trading related to the $23 billion acquisition of H.J. Heinz. According to the SEC’s complaint, the agency took notice of the Zurich-based account after it gained $1.7 million after Heinz’s stock rose upon news of its sale to Berkshire Hathaway and 3G Capital. The identity of the trader is not yet known. Goldman is not accused of any wrongdoing and was merely the conduit for the trades. The Goldman account used for the trades was an “omnibus” account, meaning it could serve as a portal for multiple traders and firms.
The Australian Securities and Investments Commission (ASIC) has announced that former Hanlong Mining Investment Pty Ltd (Hanlong) vice president Calvin Zhu has been sentenced to two years and three months in jail after pleading guilty to three counts of insider trading. The Australian reports that after he became Hanlong vice president in 2010, Mr Zhu established a private trading syndicate with another Hanlong executive and two Hanlong officers, which made insider trades on Hanlong's investments. Reportedly, the syndicate bought hundreds of thousands of shares in mining companies Bannerman Resources Ltd and Sundance Resources Ltd before Hanlong announced bold takeover bids for the two companies which saw their share prices increase sharply.
The United Kingdom Financial Services Authority (FSA) has announced that it has fined Nestor Healthcare Group Ltd (Nestor) £175,000 for weak procedures resulting in failures to properly apply its own policy regarding staff who intend to deal in Nestor shares. According to the FSA, Nestor board members and senior executives failed to comply with both the company policy and the FSA's Model Code regarding managers who deal in their own companies' shares.
A pivotal figure in the conviction of disgraced hedge fund manager Raj Rajaratnam, Roomy Khan, was sentenced to one year in prison last week after previously pleading guilty to both illegally passing inside information and obstruction of justice. According to Judge Rakoff, despite the assistance Khan provided prosecutors in the case against Rajaratnam, her exploits were serious enough to necessitate a prison term. Rakoff also said the sentence would send a “very important message” about the consequences of obstructing a federal investigation. In a separate action, Jason Pflaum was sentenced to two years of probation for securities fraud and conspiracy to commit securities fraud.
Reuters reports that United States (US) District Judge Jed Rakoff has sentenced Whitman Capital founder Doug Whitman to two years imprisonment for his involvement in two insider trading schemes between 2006 and 2009. Reportedly, one scheme allowed the firm to generate US$900,000 in illegal profits from trading the shares of Google and Polycom. Mr Whitman has reportedly also been fined US$250,00.
Earlier this week, John Kinnucan was sentenced to four years and three months in prison, in addition to being ordered to forfeit $164,000 in illegal profits. In July Kinnucan pleaded guilty to providing inside information about technology companies to hedge funds. Prosecutors also accused him of paying cash to his sources at public companies in exchange for inside information.
Hedge funds operating under the regulatory radar with few reporting obligations may soon be a thing of the past as the government weighs a new requirement that would force them to report any suspicious transactions, such as insider trading or stock manipulation. The proposed new requirement from the Financial Crimes Enforcement Network (FinCEN), an office in the Treasury Department, would effectively require hedge funds to turn themselves in and invite authorities to investigate their activities. Banks, casinos, and other financial companies already have similar requirements to report potential terrorist financing, tax evasion, or money laundering.