An Example of Cooperation Credit From The SEC

DOJ and SEC officials repeatedly encourage cooperation. There are benefits for both sides. Cooperation can facilitate the Government’s investigation, providing a road to the scheme. Testimony can aid in obtaining a favorable result. For the cooperator there is the promise of cooperation credit – a shorter sentence in a criminal case for an individual or a lesser fine. Frequently, the value in a criminal case can be seen in the sentencing guideline calculation. While in an SEC enforcement action there is also the prospect of cooperation credit, its value may be more difficult to determine since Commission remedies are not churned out by a formula.

The Commission’s recent settlement with cooperator Frank Tamayo is an illustration of cooperation credit given by the agency, according to an agency press release. SEC v. Tamayo, Civil Action No. 3:14-cv-09844 (D. N.J.). Mr. Tamayo was the man in the middle of an insider trading ring composed of three friends. He had been friends with Steven Metro since law school. Mr. Metro later became a managing clerk at Simpson Thatcher. He has also been friends with Vladimir Eydelman, a registered representative with Oppenheimer & Co., for years.

The scheme traced to February 2009 at a New York City bar. Messrs. Tamayo and Metro met with friends for drinks but separated and discussed stocks. One was Mr. Tamayo’s holdings in Sirius XM Radio. Mr. Tamayo expressed concern that the firm would go bankrupt. Mr. Metro told his friend that it would not because Liberty Media Corporation planned to invest over $500 million in the company. He knew this from reviewing Simpson Thatcher documents he assured his friend.

Subsequently, the two men called broker Eydelman and ordered additional Sirius shares for Mr. Tamayo’s account. When the Liberty-Sirius deal was announced on February 17, 2009 Mr. Tamayo had potential profits of about $157,892. His friend had profits of about $54,922. When Mr. Tamayo offered $7,000 to his friend as a “thank you” he was told to keep it in his account.

From this beginning a scheme unfolded in which the men traded on inside information stolen from Simpson Thatcher thirteen times. The mechanics of the scheme were designed to shield the three from capture. Mr. Metro accessed the law firm’s non-public information through the computer system to identify possible corporate transactions. Messrs. Metro and Tamayo then met, typically met a New York City coffee shop. Mr. Metro would signal his friend the name of the stock and/or its ticker symbol. Messrs. Eydelman and Tamayo would meet later near the information booth in Grand Central Station. Another signal transmitted the name of the company whose shares were to be acquired. Mr. Eydelman then returned to his office and researched the company. Reports with a recommendation would be transmitted to Mr. Tamayo. The stock would be purchased. Profits made.

The plan seemed fool proof. It yielded about $5.6 million in trading profits. But it failed. The SEC and the U.S. Attorney’s Office for New Jersey brought charges. Mr. Tamayo decided to cooperate with the authorities.

Based on what the SEC termed “extensive cooperation” he resolved the civil enforcement action. Under the terms of the agreement Mr. Tamayo consented to the entry of a permanent injunction based on Securities Act Section 17(a) and Exchange Act Sections 10(b) and 14(e). He was also ordered to pay disgorgement of over $1 million. That amount will be deemed satisfied by the entry of orders of forfeiture or restitution in the parallel criminal case where he has pleaded guilty. No monetary penalty was imposed. He is also obligated to continue cooperating with the authorities. The settlement is subject to court approval. See Lit. Rel. No. 23202 (July 13, 2015).

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