Investment Banker Charged with Insider Trading by SEC, USAO
Investment banker Avaneesh Krishnamoorthy was supposed to report his outside brokerage account and that of his wife to his firm. He did not. He was supposed to report any transaction in either account to his firm. He did not. He was supposed to comply with his firm’s insider trading policy. He did not. Now the U.S. Attorney’s Office and the SEC have charged him with insider trading. SEC v. Krishnamoorthy, Civil Action No. 17-cv-2953 (S.D.N.Y. Filed April 24, 2017).
This action centers on a going private transaction in which investment bank Golden Gate Capital would acquire then publically traded NeuStar, Inc., announced before the opening of trading on December 14, 2016. Defendant Avaneesh Krishnamoorthy obtained a position with Investment Bank in 2015. He was a vice president and market risk specialist. On April 10, 2015 he opened an IRA account for himself. His wife, Shreya Achar, also opened an IRA brokerage account. Mr. Krishnamoorthy failed to report the opening of these accounts to his employer as required.
On November 21, 2016 Golden Gate approached Investment Bank in an effort to secure financing for a potential business transaction with NeuStar. Over the next few days Golden Gate furnished Investment Bank with confidential due diligence materials relating to the proposed transaction. Two days after the initial contact the New Business Group at the investment bank circulated an internal memo to Mr. Krishamoorthy and others regarding the deal and the proposal that the Investment Bank provide financing.
The next trading day Mr. Krishnamoorthy purchased 800 shares of NeuStar stock in his wife’s account along with 9 options. Three days later — on November 28 — Mr. Krishnomoorthy received a second memorandum about the deal. The memo explained that the firm’s Debt Loan Committee was being asked to approve financing for the acquisition of NewStar. Like the earlier papers about the deal Defendant had received, the memo was highly confidential.
The next day Mr. Krishnamoothy purchased 30 NeuStar call options through his brokerage account. His wife’s account continued to purchase call options with a $25 strike price but sold NewStar options that had a $30 strike price. From December 2 to December 13 additional stock and call options were purchased for the wife’s account. During the same period both accounts sold NeuStar calls and, as the share price began to rise, closed out some positions.
On December 14, 2016 NeuStar issued a press release before the markets opened announcing the going private transaction. The share price increased that day about 21% over the prior day’s close. Mr. Krishnamoorthy sold the remaining call options in his IRA account that day. The remaining stock and some of the call options in his wife’s account were also sold. Defendant’s account had a profit of $18,510 while his wife’s had profits of about $29,917 and unrealized gains on other positions.
In April Investment Bank confronted Mr. Krishnamoorthy about his trading following an inquiry from FINRA. In response Defendant turned over the account statements to his wife’s account. The same day $20,000 was transferred out of that account. Over the next three weeks another $47,000 was transferred from the account. The Commission’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The U.S. Attorney’s Office filed parallel criminal charges. Both cases are pending.