More Settlements In the “Merrill Lynch/Business Week” Insider Trading Case
The SEC announced its latest settlements in the “Merrill Lynch/Business Week” insider trading case on Friday, an action which involved a wide spread serial insider trading ring. These settlements were with defendants Nickolaus Shuster, Juan C. Renteria, Jr. and Monika Vujovic, participants on the Business Week side of the scheme. SEC v. Anticevic, 05-Civ. 6991 (S.D.N.Y. Filed Aug. 5, 2005) (there are also parallel criminal actions).
The case began in August 2005, when the SEC filed an emergency action against Sonja Anticevic, a Croatian national and resident. The complaint centered on allegations of suspicious trading in out of the money call options of Reebok International just prior to the announcement that the company had agreed to be acquired by adidas-Salomon AG. The complaint claimed that Ms. Anticevic purchased 1,997 call options for Reebok at a cost of about $130,000 on August 1 and 2, 2005. When the acquisition was announced on August 3, the share price of Reebok rose almost 30%. The options in Ms. Anticevic’s account were then liquidated at a profit of over $2.4 million. That same day, the brokerage received instructions to wire $870,000 to Salzburg, Austria. The Commission however, was able to obtain an emergency freeze order preventing the transfer.
Approximately two weeks later, the SEC amended its complaint by adding a number of defendants. Specifically, the amended complaint added as defendants: David Pajcin of New Jersey, who is the nephew of Ms. Anticevic; Henry Siegel, a resident of New York; Monika Vujovic, also a resident of New York; Elvis Santana, a resident of New York; Zoran Sormaz, a resident of Croatia; Perica Lopandic, a resident of Germany; Ilija Borac, a resident of Croatia; and unknown persons trading in an account at an Austrian broker, Direktanlage.at AG. In July 2006, the three defendants who are alleged to have traded through that account were added as defendants.
The amended complaint claimed Mr. Pajcin, a former broker, placed or directed some of the Reebok trades and tipped others who placed Reebok trades. Those trades were placed in two groups on August 1 and 2. One group was through four domestic accounts. There, defendants Anticevic, Siegel, Vujovic and Santana purchased 4,097 Reebok out of the money call options representing about 80% of the buy volume in those options at that time. The second group involved foreign accounts. There defendants Anticevic, Sormaz, Lopandic and Borac purchased another 145,240 shares of Reebok through foreign accounts with the same broker. Collectively, the proceeds from the foreign trading were more than $2 million. A preliminary injunction was obtained against each defendant and freezing all of these account in September 2005.
In April 2006, the SEC filed a second amended complaint adding Eugene Plotkin, a research analyst at Goldman Sachs, as a defendant. That complaint alleged that Messrs. Plotkin and Pajcin directed a wide spread insider trading scheme which had two key facets. In one, known as the Merrill Lynch scheme, Messrs. Plotkin and Pajcin obtained confidential deal information from Merrill analyst Stanislav Shpigelman in return for a share of the profits. Using this information, defendants Plotkin and Pajcin traded in six deal stocks prior to the public announcement of the transactions. The information was also passed on to other traders in the U.S. and Europe. The Merrill Lynch scheme is alleged to have yielded over $6.4 million in illegal trading profits.
In the second, known as the Business Week scheme, Messrs. Plotkin and Pajcin recruited Nickolaus Shuster and Juan Renteria to obtain positions at the plant where the magazine was published so that advance information from about-to-be-published editions could be obtained. Using this information, defendants Plotkin and Pajcin traded in the securities of at least twenty companies yielding illicit profits of over $345,000.
In May 2006, the SEC again amended its complaint. This time, the Commission added Jason Smith, a resident of New Jersey and a postal service employee as a defendant. According to the SEC, Mr. Smith was serving on a federal grand jury investigating Bristol-Myers Squibb. Messrs. Plotkin and Pajcin recruited him to obtain information about the proceedings. Defendants Plotkin and Pajcin then used this information to trade and tipped others.
The SEC settled with Eugene Plotkin, Jason Smith, Elvis Santana and Stanislav Shpigelman in June of last year. Each defendant consented to the entry of a permanent injunction prohibiting future violations of the federal securities laws. Messrs Shpigelman and Santana were also ordered to pay disgorgement. The SEC did not seek disgorgement orders against the other settling defendants because they did not obtain any of the trading profits. Likewise, the SEC did not seek an order imposing penalties against Shpigleman, Plotkin and Smith in view of their prison sentences in a parallel criminal case.
In the settlements announced Friday, each defendant was enjoined by consent from future violations of the federal securities laws. Defendant Vujovic was also ordered to pay disgorgement of $261,364 to be satisfied by payment of all the funds in a brokerage account in her name which has been frozen since 2005. No disgorgement orders were entered against defendants Shuster and Renteria who had been paid for the Business Week information. Likewise, no civil penalties were imposed on any of the settling defendants.