by T. GormanPosted on Posted in SECActions

Keeping it in the family is a recurring theme in SEC insider trading cases. Recently the Commission has brought insider trading cases against a father and son, SEC v. Perterson, Civil Action No. 11-CV-5448 (S.D.N.Y. Filed Aug. 5, 2011), a father and daughter, SEC v. Goetz, Case No. 11 CV 1220 (S.D. Cal. June 3, 2011), two brothers-in-law, SEC v. Temple, Case No. 10-cv-1058 (D.De. Filed Dec. 7, 2010), a husband and wife, SEC v. Jantzan, Case no. 1:10-cv-00740 (W.D.Tx. Oct. 5, 2010) and two families, SEC v. McCellan, Case No. CV 10 5412 (N.D. Cal. Filed Nov. 30, 2010).

With In the Matter of Spencer Mindlin, Adm. Proc. File No. 3-14557 (Sept. 21, 2011) the Commission has added to its string of family cases, brining insider trading charges against a father, Alfred Mindlin, and his son, Spencer Mindlin. This case has a bit of a twist however since it is the first insider trading action to involve exchange traded funds or ETFs. And, while SEC insider trading cases are generally developed beginning with the trading and then investigating back in time which precludes the kind of tape recordings found in the Galleon and expert network cases, this one actually features the father and son on tape discussing a trade and is supported with e-mails the son obtained from Goldman that contained inside information used to trade.

Son Spencer was employed at Goldman Sachs Execution & Clearing, L.P. and its predecessor as an analyst from June 2001 through September 2007. From September 2007 through August 2009 he was an employee on the ETF Desk. His father is a CPA who conducted his own practice.

Goldman maintained large net long positions in the SPDR S7P retail ETF or XRT. That ETF is designed to replicate the S&P Retail Select Industry Index. The XRT rebalances each quarter adding or deleting securities to mirror the S&P Retail Index. To hedge its long positions Goldman shorted the securities underlying the XRT. To maintain these positions Goldman had to rebalance its short positions each quarter.

From his position on the ETF desk Spencer knew about Goldman’s net long XRT positions. He also understood the rebalance process. Since the positions taken by Goldman in the underlying securities were substantial, when they were altered in the rebalance process it significantly impacted the market in those shares. On four occasions in December 2007 and March 2008 Spencer and his father Alfred traded the XRT underlies with knowledge of Goldman’s trading intentions.

Spencer obtained the information regarding the rebalancing process from other employees. For example, in December 2007 when the firm was rebalancing Spencer obtained a spread sheet from a colleague showing the positions Goldman would have to take to rebalance. This permitted Spencer and his father to anticipate Goldman’s transactions and benefit. For other trades Spencer was able to obtain sufficient internal Goldman information to anticipate the firm’s transactions.

Spencer and his father placed the trades through the account of a relative at TD Ameritrade. The father and son telephoned repeatedly about the trades. In once instance Alfred phoned TD Ameritrade regarding the account. While on hold with the TD Ameritrade representative, Spencer called Alfred on another line. The TD Ameritrade tape system recorded the conversation, capturing the father and son discussing a trade. Overall the traders netter over $57,000 in illicit profits.

The Order alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is proceeding to litigation.

Program: ABA Seminar: Is the DOJ and SEC War On Insider Trading Rewriting the Rules? ABA program, live in New York City, webcast nationally. Friday September 23, 2011 from 12 – 1:30 p.m. at Dorsey & Whitney, 51 West 52 St. New York, New York 10019.
Co-Chairs: Thomas O. Gorman, Dorsey & Whitney LLP and Frank C. Razzano, Pepper Hamilton LLP.
Panelists: Christopher L. Garcia, Chief, Securities and Commodities fraud Task Force, Assistant U.S. Attorney, Southern District of New York; Daniel Hawke, Chief, Market Abuse Unit, Securities and Exchange Commission; Stuart Kaswell, Executive Vice President & Managing Director, General Counsel, Managed Funds Association; Tammy Eisenberg, Chief Compliance Officer, General Counsel and Senior Vice President, DIAM U.S.A., Inc.
For furhter information please click here.

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by T. GormanPosted on Posted in SECActions

The IG Report

The SEC inspector general issued a report on Tuesday referring the matter regarding former SEC General Counsel David Becker’s involvement with the Madoff clawback suits to the DOJ. The report also contains a number of recommendations including that the Commission take another vote on its position regarding the valuation of Madoff victim accounts. SEC Chairman Schapiro issued a brief statement noting that it would be inappropriate to comment on the criminal referral but stating that Mr. Becker was a dedicated civil servant.

The statement and the report are here.

If this were the conclusion of the Madoff debacle for the SEC it would be a sad end to a sorry tale. Unfortunately it is not. What is essential however is that the Commission continue its efforts to return to the time when it was considered one of the best agencies in government. Many dedicated people are working hard to achieve that result. Whatever the outcome of the IG’s referral it is essential for investors, the markets and the public that those efforts not just continue but succeed.

Enforcement – insider trading

The SEC brought another “suspicious trading” insider trading case against unknown traders. This one of a series of similar insider trading cases based on little more than a take-over announcement and large, timely trading. In the past the Commission has been successful with these actions.

This time it involved the shares of Global Industries, Ltd. The suit centers on the acquisition by Technip SA, of Global. Technip is a Paris based company and is Europe’s second largest oil services enterprise. Global is based in Carlyss, Louisiana. It provides oil field construction services, including pipeline construction, platform installation, diving services and construction support to the offshore oil and gas industry.

The acquisition was announced on September 12, 2011. Four days before that announcement unknown purchasers bought 285,840 shares of Global common stock. The next day, September 9, 2011, an additional 400,000 shares were acquired. The purchases were made through an omnibus account in the name of Raiffeisen Bank International AG Vienna, Austria at Brown Brothers Harriman & Co.

Following the deal announcement the share price of Global increased about 55% over its prior close. All of the shares held in the account were immediately sold at a profit of $1,728,810. Four days later on September 16, 2011 the Commission filed suit and obtained an emergency freeze order of the account. SEC v. One or More Unknown Purchasers of Securities of Global Industries, Ltd., Civil Action No. 11 Civ. 6500 (S.D.N.Y. Filed Sept. 16, 2011). The case is pending.

Program: ABA Seminar: Is the DOJ and SEC War On Insider Trading Rewriting the Rules? ABA program, live in New York City, webcast nationally. Friday September 23, 2011 from 12 – 1:30 p.m. at Dorsey & Whitney, 51 West 52 St. New York, New York 10019.
Co-Chairs: Thomas O. Gorman, Dorsey & Whitney LLP and Frank C. Razzano, Pepper Hamilton LLP.
Panelists: Christopher L. Garcia, Chief, Securities and Commodities fraud Task Force, Assistant U.S. Attorney, Southern District of New York; Daniel Hawke, Chief, Market Abuse Unit, Securities and Exchange Commission; Stuart Kaswell, Executive Vice President & Managing Director, General Counsel, Managed Funds Association; Tammy Eisenberg, Chief Compliance Officer, General Counsel and Senior Vice President, DIAM U.S.A., Inc.
For furhter information please click here.

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