by T. GormanPosted on Posted in SECActions

The DOJ and the SEC settled insider trading charges with Diamondback Capital Management, LLC in the Dell insider trading cases. The firm entered into a non-prosecution agreement with the U.S. Attorney’s Office to resolve possible criminal charges. Under the terms of that agreement the firm will forfeit $6 million based on the profits it obtained/losses avoided. Diamondback also provided the U.S. Attorney’s Office with a detailed Statement of Facts relating to the alleged wrongful conduct of two of its employees named as defendants. The firm also represented, based on an investigation by external counsel, that the misconduct under investigation does not extend beyond that described in the Statement of Facts and was not known by the co-founders of the firm. Diamondback agreed to cooperate with the government’s on-going investigation. See also U.S. v. Newman, 12 mag 0124 (S.D.N.Y. Filed Jan. 18, 2012)(insider trading charges filed against the individuals in the Dell insider trading case, including two persons formerly of Diamondback; the firm was not named as a defendant).

The SEC also resolved its charges with Diamondback. SEC v. Addondakis, 12-cv-0409 (S.D.N.Y. Filed Jan. 18, 2012)(naming Diamondback as a defendant along with others). To settle with the SEC the firm consented to the entry of a permanent injunction which precludes future violations of the antifraud provisions of the federal securities laws. The settlement also requires that the firm disgorge its trading profits – a point covered in the settlement of the criminal inquiry – and pay a civil penalty of $3 million. In connection with the settlement the SEC was furnished with a Statement of Facts as in the resolution of the criminal case. The settlement papers do not specify that the firm neither “admits nor denies” the allegations in the complaint as in traditional Commission settlements (here). The SEC acknowledged the cooperation of the firm as did the U.S. Attorney’s Office.

The underlying charges center on trading in the shares of Dell, Inc. and NAVIDIA based on inside information. According to the court papers, Todd Newman a portfolio manager at Diamondback, Jesse Tortora, an analyst at the firm, and others obtained inside information regarding forth-coming earnings releases for each firm and used the information to trade and illegally tip others in 2008 and 2009. Mr. Tortora previously pleaded guilty in the criminal case (here).

In previous criminal insider trading cases stemming from the Galleon and expert network inquiries, criminal charges were not filed against the entities involved. However, Galleon Management, Level Global Investors, Loch Capital Management and Barai Capital ceased operations. In contrast, Diamondback did not.

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by T. GormanPosted on Posted in SECActions

The number of securities class actions filed in 2011 increased to 188 compared to 176 filings the prior year, according to a recent report from Cornerstone Research. That number is still below the average of 194 cases filed from 1997 through 2010. One large group of case is the 33 actions representing 17.6% of all securities class actions which are related to Chinese issuers listed on U.S. exchanges through reverse mergers. As the year progressed however, the number of these filings appeared to decline. A second large group of case were the 43 actions related to M&A activity. This appears to build on a trend which began in 2010.

Other key points indentified in the survey include:

  • Stage of litigation: The survey analyzed the progress of securities class actions through the discovery process by taking a sample of cases from 1997 through 2011. Based on this sample 75% of the cases reached the motion to dismiss stage while only 8% reached a ruling on summary judgment.
  • FCPA related cases: The survey also tracked the number of class actions related to FCPA investigations being conducted by the DOJ and the SEC. Since 1998 there have been 25 such actions filed. In 2011 the second largest number of these cases were filed. In 2005 the largest number of FCPA related cases were brought.
  • Industry: In 2011 the largest number of cases was brought against companies in the telecommunications services industry. Over the years companies in the healthcare business have typically been a key target. Last year a number of securities class actions were brought against smaller health care companies.
  • Whistleblowers: The new SEC whistleblower program received 334 tips. Most related to claims of market manipulation, corporate disclosures, financial statements and offering fraud. The data is only for seven weeks however.
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