MARKET PROFESSIONALS AND INSIDER TRADING
Market professionals continue to be targets in insider trading cases. Earlier this week, the UK’s FSA and the Serious Fraud’s Office conducted a huge raid in which six individuals, including City professionals, were arrested for insider trading. Not to be outdone, yesterday the U.S. Attorney’s Office in Manhattan, along with the SEC and the Financial Fraud Enforcement Task Force, brought insider trading charges centered on an insider trading ring involving Wall Street professionals. The USAO filed a criminal information naming as defendants Igor Poteroba and Alexei Koval. U.S. v. Poteroba (S.D.N.Y. Filed Mar. 24, 2010). At the same time, the SEC filed insider trading complaint against Messrs. Poteroba and Koval as well as Alexander Vorobiev. SEC v. Poteroba (S.D.N.Y. Filed Mar. 24, 2010).
Mr. Poteroba was a managing director at UBS Securities in their Healthcare Group. Mr. Koval previously was employed at Citigroup Asset Management. Both men are Russian nationals, as is Alexander Vorobiev, the third defendant in the SEC complaint who currently resides in that country.
The criminal information contains one count of conspiracy and three counts of securities fraud. It centers on illegal tips Mr. Potoroba is alleged to have provided to Defendant Koval. From 2005 through February 2009, Mr. Poteroba provided Mr. Koval with inside information on six publicly traded healthcare companies involved in pending mergers, according to the court papers. That information was then typically passed on by Mr. Koval to a person identified as “another co-conspirator (CC-1).” Frequently, the tips were passed on in coded e-mails.
The six companies included Guilford Pharmaceuticals, Inc., Molecular Devices Corporation, PharmaNet Pharmaceuticals, Inc. and Indevus Pharmaceuticals, Inc. Overall, the trading is alleged to have resulted in about $870,000 in trading profits. Mr. Poteroba is alleged to have received at least $28,000 from Mr. Koval. The two defendants were arrested yesterday.
The SEC complaint is based on a larger version of the same scheme. It adds tips on five additional deals involving: ID Biomedical Corporation, ViaCell, Inc., Radiation Therapy Services, Inc., Datascope Corp. and Sciele Pharma, Inc. According to the Commission’s complaint, the scheme yielded in excess of one million dollars in illegal trading profits. The complaint alleges violations of Exchange Act Sections 10(b) and 14(e). The case is in litigation.