A complaint (“criminal complaint”) filed in the United States District Court for the Southern District of New York on April 11, 2006 to obtain an arrest warrant details the operations of an insider trading ring which engaged in two schemes netting over $6 million in trading profits. According to the criminal complaint, those involved included Eugene Plotkin, an associate in the Fixed Income Research Division at Goldman, Sachs & Co., David Pajcin, a former analyst at Goldman, Sachs and Stanislav Shpigelman, an investment banking analyst in the mergers and acquisition division of Merrill Lynch & Co. The criminal complaint was filed to obtain arrest warrants for Shpigelman, Plotkin and Juan Renteria, an employee of a printing plant where Business Week is produced. The criminal complaint states that it is based on information from the investigation conducted by the FBI, the SEC and Pajcin. On the same date, the SEC moved to amend a complaint (SEC complaint) it filed in August 2005 and amended later that month. The proposed second amended SEC complaint is based on the same insider trading schemes detailed in the criminal complaint but charges 13 individuals in the U.S. and Europe. The initial SEC complaint sought and obtained an order freezing a securities account in the name of Sonja Anticevic, a Croatian national and resident which had traded in Reebok call options prior to the announcement that company was being acquired Adidas. That SEC complaint was amended shortly after it was filed to include other accounts that traded on the same deal. A freeze order was also obtained as to those accounts.

In one scheme Shpigelman in return for cash and future payments gave Plotkin and Pajcin inside information on six different pending mergers or acquisitions being handled by Merrill Lynch in 2004 and 2005. Those transactions included the Procter & Gamble acquisition of The Gillette Company, the acquisition of Eon Labs by Novartis AG, the merger of Cinergy and Duke Energy, the attempt by Amgen to acquire Celgene, the acquisition of Reebok by Adidas and the acquisition of LabOne by Quest. Trading in advance of the announcement on these transactions yielded about $6.4 million in profits according to the complaint.

A second scheme involved the acquisition of advance information from the Business Week column, Inside Wall Street. According to the complaint, Plotkin and Pajcin bribed two employees of a printing plant where the magazine was produced. One of those employees is alleged to be Juan Renteria. As a result they were able to obtain advance information about stocks that would be mentioned in the column and traded in approximately 20 different stocks (the proposed second amended SEC complaint alleges at least 25 stocks) one day prior to publication. The list of stocks in the complaint include The Street.com, Alltel Corp., IMAX, PriceSmart, Federal Express, Spectrum Pharm., Inc., and Symbol Technologies. This scheme netted at least $340,000 in profits according to the complaint.

A third scheme apparently involved helping others get jobs at investment banks in the hopes that they could later misappropriate inside information according to the complaint. The results of this scheme are not detailed. A number of the tipees are not specifically identified.

The SEC press release can be found at http://www.sec.gov/news/press/2006/2006-53.htm, the SEC complaint can be found at http://www.sec.gov/litigation/complaints/2006/comp19650.pdf, and the criminal complaint can be found at https://www.secactions.com/pdf/complaint.pdf

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The SEC outlined its policy for issuing subpoenas to the media in a release issued April 12, 2006. The policy applies only to the news gathering functions and news media sources, not demands for purely commercial or financial information unrelated to the news gathering function. The release outlines a multistep process for obtaining information from the media which focuses on only issuing such a subpoena after all other alternatives are exhausted and after notice to the media and negotiations over its content. Those steps require the staff to repeatedly notify the media and negotiate the contents of the potential subpoena in a fashion which is somewhat similar to that imposed on the SEC by the Ninth Circuit in Jerry T. O’Brien, Inc. v. SEC,704 F.2d 1065 (9th Cir. 1983) which was later reversed by the Supreme Court in SEC v. Jerry T. O’Brien, Inc., 467 U.S. 735 (1984) based in part on SEC arguments that such notice was contrary to the intent of Congress and would unduly interfere with its investigations.

The steps outlined in the release include the following: 1) The staff should try and obtain the information form alternative sources; 2) An Associate Director or Regional Director can authorize the staff to contact the organization through counsel if known to discuss obtaining the information; 3) If the information is essential to the investigation and the discussions fail, the Director of the Division of Enforcement, after consultation with the General Counsel, can authorize the issuance of a subpoena. The SEC Chairman and the recipient of the subpoena must receive notice. The subpoena should be negotiated with counsel for the news media to narrow it as much as possible. Absent special circumstances the subpoena should be limited to the verification of published information and the surrounding circumstances.

The SEC took the unusual step of issuing this policy following the issuance by the staff of subpoenas to certain media outlets and the announcement by Chairman Cox on March 3, 2006 that those subpoenas would be withdrawn. The SEC policy can be found at http://www.sec.gov/news/press/2006/2006-55.htm

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