ANOTHER FAMILY INSIDER TRADING RING

In insider trading investigations the focus is shifting at least momentarily from hedge funds and their expert networks to family cases. Last week, two sisters teamed up to use inside information obtained by one husband as the basis for securities trades by the husband of the other. This week two brothers-in-law teamed up in another family insider trading ring. SEC v. Temple, Case No. 10-cv-1058 (D. Del. Filed Dec. 7, 2010).

Temple names as defendants Jeffery Temple and his brother-in-law Benedict Pastro. Mr. Temple was employed at a Wilmington, Delaware law firm August 12, 2002 through October 11, 2010 when he was terminated because of the insider trading scheme alleged in the Commission’s complaint. At the firm, he held the position of Information Systems and Security Manager. This gave him access to electronic and other files containing material non-public information. Defendant Benedict Pastro is Mr. Temple’s brother-in-law. He was employed as a sales person for a consulting firm.

Beginning in June 2009, and continuing until his termination from the firm, Mr. Temple traded in advance of twenty-two prospective mergers and/or acquisition-related announcements involving twenty law firm clients. In twelve instances, the complaint claims Mr. Temple tipped his brother-in-law. Mr. Temple used one brokerage account opened in June 2009 in his name to place all of his trades. Mr. Pastro used two on-line brokerage accounts in his name to place all of this trades.

The complaint details twenty two transactions spread over about fifteen months when Mr. Temple traded. For example, by March 23, 2009, On2Thnoleogies, Inc. had engaged the law firm in connection with its possible acquisition by Google. Mr. Temple had access to inside information about the deal as a result of his position with the firm. On July 20, 2009 Mr. Temple purchased 11,000 shares of On2Technologies. Following the announcement of the deal on August 5, 2009, the share price rose 58%. Mr. Temple subsequently sold his stock at a profit of $1,800. The pattern of modest trades for small gains is repeated with the other stocks. Overall, Mr. Temple is alleged to have made illegal profits of $88,300. Mr. Pastro is alleged to have made $94,000 in illegal profits.

The complaint alleges violations of Exchange Act Sections 10(b) and 14(e). The case is in litigation. See also Litig. Rel. 21765 (Dec. 7, 2010).

FCPA Program: Thursday, December 9, 2010 from 12:00 to 1:30 p.m. Tom Gorman and Frank Razzano will co-chair the “Third Annual FCPA Update: Current SEC & DOJ Enforcement Activities.” The program is sponsored by the ABA Criminal Justice Section, White Collar Securities Fraud Subcommittee of which Mr. Gorman is co-chair.

The panel of speakers includes: Judge Stanley Sporkin, Law Offices of Stanley Sporkin, Peter B. Clark, Cadwalader, Wickersham & Taft, F. Joseph Warin, Gibson Dunn, and Tammy Eisenberg, Chief Compliance Officer and General Counsel of DIAM, New York City.
The program will be webcast nationally and live in Washington, D.C. at the offices of Pepper Hamilton where Mr. Razzano is a partner, 600 14th Street, Washington, D.C. Lunch will be served during the program. To register please click on the following link: http://www.abanet.org/cle/programs/t10fpa1.html.

THE FCPA: A KEY FOCUS OF SECURITIES REGULATORS

While insider trading has been dominating the news, the Foreign Corrupt Practices Act remains a key focus of securities regulators. The Department of Justice continued to unwind a years long conspiracy to violate the FCPA with the guilty plea yesterday of Wojciech J. Chodan, a former commercial vice president and consultant to the U.K. subsidiary of Kellogg, Brown & Root, Inc., now a subsidiary of Halliburton Company. Mr. Chodan pleaded guilty to conspiring to violate the FCPA. The date for sentencing has not been set.

The conduct on which Mr. Chodan’s plea is based traces to 1990 and continued over the next fourteen years. At that time KBR, Snamprogetti Netherlands B.V., Technip S.A. and another company formed a joint venture to secure contracts from Nigeria LNG, Ltd., a company formed by the Nigerian government which held a 49% interest. The government created the company to capture and sell natural gas associated with oil production in the country. The joint venture partners determined that bribes had to be paid to acquire business.

From 1995 through 2004, the joint venture was awarded four EPC contracts by Nigeria LNG Ltd. to build facilities on Bonny Island. KBR CEO Albert Stanley and others met with a designated representative of the government and negotiated the agreements and bribes. Mr. Chodan recommended that the joint venture hire two agents to pay the bribes. One was a Gibraltar corporation controlled by Jeffrey Tesler. The other was a Japanese trading company. About $132 million was paid to the Gibraltar company. Another $50 million was paid to the Japanese trading company. At various points during the venture, Messrs. Stanley, Chodan and others met with government officials to secure the appointment of a representative with whom they could deal.

Previously, KBR, Snamprogetti, Technip and Mr. Stanley resolved their cases:

• KBR pleaded guilty to conspiring to violate the FCPA. The company agreed to pay a $402 million criminal fine which is at the lower end of the sentencing guideline range and to retain a monitor for three years. U.S. v. Kellogg Brown & Root LLC, Case No. H-09-071 (S.D. Tex. Filed Feb. 11, 2009) (here). The company and its parent also settled with the SEC, consenting to the entry of a permanent injunction prohibiting future violations of the anti-bribery and books and records and internal control provisions of the FCPA and to pay disgorgement of $177 million. SEC v. Halliburton Co., Case No. 4:09-CV-399 (S.D. Tex. Filed Feb. 11, 2009) (also discussed here).

• Snamprogetti settled with DOJ, entering into a deferred prosecution agreement and agreeing to pay a criminal fine of $240 million. The fine is about 20% below the guideline range, reflecting the full cooperation of the company. U.S. v. Snamprogetti Netherlands B.V., Case No. H-10-460 (S.D. Tex. Filed July 7, 2010). The parent company and the subsidiary settled with the SEC, consenting to the entry of a permanent injunction prohibiting future violations of the anti-bribery and books and records provisions and to pay a civil penalty of $125 million. SEC v. ENI, S.p.A., Case No. 4:10-cv-0214 (S.D. Tex. Filed July 7, 2010) (here).

• Technip entered into a deferred prosecution agreement with DOJ and to pay a $240 million criminal fine which is about 25% below the guideline calculation reflecting its cooperation. The company also agreed to install a compliance monitor. U.S. v. Technip, H-10-439 (S.D. Tex. Filed June 28, 2010). To settle with the SEC, Technip consented to the entry of a permanent injunction prohibiting future violations of the anti-bribery and books and records provisions of the FCPA. The company also agreed to disgorge $98 million in profits from the scheme along with prejudgment interest. SEC v. Technip, Case No. 4:10-cv-02289 (S.D. Tex. Filed June 28, 2010) (here).

• Mr. Stanley pleaded guilty to a two count information charging conspiracy to violate the FCPA and conspiracy to commit wire and mail fraud. U.S. v. Stanley, H-08-597 (S.D. Tex. Filed Sept. 3, 2008).