by T. GormanPosted on Posted in SECActions

Insider trading has long been an enforcement priority for the Manhattan U.S. Attorney’s Office and the SEC. A string of high profile criminal and civil insider trading cases attest to this fact. What is perhaps less recognized is the fact that the SEC has long been pushing the edges of what constitutes insider trading, moving toward what some commentators call a parity of information standard. In cases such as SEC v. Steffes, Case No. 1:10-cv-06266 (N.D. Ill. Filed Sept. 30, 2011)the Commission has challenged the mosaic theory, pasting together bits of information observed at work to allege that employees had inside information. In others the Commission has challenged the requirement of deception and breach of duty, bringing an action even when the company apparently authorized the employee to trade. SEC v. Knight, Case No. 2:11-cv-00973 (D. Ari. Filed May 18, 2011); see also SEC v. Obus, No. 10-4749 (2nd Cir. Sept. 6, 2012) (finding breach of duty to company where a company investigation concluded otherwise).

In yet another case which appears to be pushing the boundaries what constitutes inside information the Commission has now charged a Toronto based investment banker with insider trading based largely on what he pieced together about a deal while trying to win business for his company. SEC v. Moore, 13 Civ 2514 (S.D.N.Y. Filed April 16, 2013) . The case, charging violations of Exchange Act Section 10(b), is in litigation.

The action centers on the acquisition of Tompkins plc whose ADRs are traded in New York by Canadian Pension Plan Investment Board or CPPIB and a Canadian private equity firm. The deal was announced on July 19, 2010.

Canadian Imperial Bank, or CBIC, investment banker Richard Moore’s responsibilities included pitching possible investment transactions to win business for his bank. He had three top clients, one of which was CPPIB. Over time Mr. Moore had developed a business and personal relationship with a Managing Director at CPPIB who was in charge of the Tompkins acquisition. Mr. Moore periodically contacted the Managing Director, seeking business.

In early February 2010 CPPIB was approached by a Canadian equity fund about a possible acquisition of Tomkins. CPPIB studied the transaction and began moving forward. The Managing Director was put in charge of the transaction.

Subsequently, Mr. Moore repeatedly contracted his friend and, based on those contacts and other information detailed below had inside information, according to the complaint:

Seeking business:In March 2010 when he contacted the Managing Director, Mr. Moore learned that he was working on something big. When Mr. Moore asked if his bank could work on the deal, he was told they would have to wait and see.

Another effort:In a March 24, 2010 e-mail Mr. Moore asked his friend if debt was needed on the deal. The Managing Director responded by inquiring if CBIC would underwrite $2 billion. Mr. Moore indicated “part yes” and asked “in Canada.” He was then told the deal was probably not for him.

London:As the Managing Director continued to work on the deal from March to May, Mr. Moore learned that his friend was traveling to London.

Chance encounter: In June 2010 the two men attended a charity event. Mr. Moore observed the Managing Director in a chance encounter with an unidentified man. Although his friend declined to identify the individual, another person told Mr. Moore the man was the CEO of Tomkins.

CBI e-mail: In a June 24 e-mail a senior investment banker at CBIC complained that CPIB was working on a “big deal” and the bank had no part of the work.

The day after the charity event Mr. Moore inquired with contacts from another deal about purchasing securities outside the country. Four days after the CBIC e-mail he purchased 51,350 Tomkins ADRs. He also purchased 42,000 Tomkins common shares on an exchange outside the U.S. Later Mr. Moore purchased an additional 170,000 shares outside the U.S. Overall, the purchases represented about one third of his net worth. Following the deal announcement Mr. Moore had profits on the ADR purchases of $163,000.

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by T. GormanPosted on Posted in SECActions

Broker David Miller did not have inside information about the Apple earnings call scheduled for October 25, 2012. He did have something else – plans to profit from the announcement if the stock went up or down. In the end, however, the plan resulted in him pleading guilty to criminal charges, being named as a defendant in an SEC enforcement action putting his employer out of business. U.S. v. Miller, 3:12-mj-00288 (D. Mass.); SEC v. Miller (D. Mass. Filed April 15, 2013).

David Miller was employed as a registered representative at Rochdale Securities LLC. Mr. Miller and a customer of the firm crafted a plan to reap huge profits if the earnings announcement resulted in a price increase for Apple shares. The plan called for Mr. Miller to enter orders for 1,625,000 shares of Apple stock. If the price of Apple shares increased following the announcement of its earnings, the huge position would reap large profits. If the stock price went the other way the customer would disavow the trades, claiming that they were an error. The loss would then fall on the brokerage.

To implement this part of the plan Mr. Miller entered a series of orders for 125,000 shares of Apple stock for the customer over the course of the day on October 25, 2012 and in anticipation of the earnings announcement due after the close. As the orders were entered Mr. Miller assured the firm they were authorized by the customer. In total the orders were for $1 billion of Apple stock.

Mr. Miller also had another broker to enter a 500,000 share short position in Apple the same day. He convinced the broker to enter the order by making a series of misrepresentations in which Mr. Miller essentially claimed that he had accepted a position at another broker-dealer and that the firm was authorized the trade.

By the close of business Mr. Miller was set to profit regardless of the direction Apple’s share price. Following the announcement the share price declined. As planned the customer disavowed the $1 billion in purchases at Rochdale Securities. That firm suffered a $5.3 million loss, creating a net capital violation. Eventually Rochdale was forced to withdraw its registration statement. It is out of business. The second broker traded out of the short position, making a small profit.

In the criminal case Mr. Miller pleaded guilty to one count of conspiracy to commit wire and securities fraud and one count of wire fraud. In the SEC’s action, the complaint alleges violations of Exchange Act Section 10(b) and Securities Act Sections 17(a)(1) and (3).

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