SEC, DOJ Charge Investment Bank Analyst With Insider Trading
The SEC and the Department of Justice announced insider trading charges against a former investment banker and his long time friend centered on two deals. The SEC’s complaint also named a third person alleged to have been a second tier tippee. SEC v. Aggarwal, Civil Action No. 2:15-cv-06460 (C.D. Cal. Filed August 25, 2015).
Defendant Ashish Aggarwal worked as an analyst at J.P. Morgan Securities LLC in its San Francisco office. His friend, defendant Shahriyar Bolandian, worked for an e-commerce company founded by Kevan Sadigh, also a defendant in the SEC’s action. Each defendant declined to testify during the staff’s investigation.
Mr. Aggarwal was an analyst in the JPM investment banking department in the Technology, Media & Telecommunications Group. He routinely had access to inside information from his employment. He had a duty to preserve the confidentiality of that information under the firm’s Code of Conduct.
Messrs. Aggarwal and Bolandian had been close friends since they were undergraduate students at Berkley. Beginning at least in 2012 Mr. Bolandian, in consultation with his friend, conducted a series of securities trades in one or more accounts. Trading in this fashion permitted Mr. Aggarwal to circumvent the JPM pre-clearance rules regarding securities trading and potentially share in the profits. By March 2013 however the two men suffered trading losses.
The first deal involved Integrated Device Technology, Inc. and PLX Technology, Inc. In early 2012 JPM was retained by Integrated Device, a provider of integrated circuits, with respect to the acquisition of PLX, a provider of integrated circuits that performed system connectivity functions. By mid-April the negotiations advanced. By April 15 a draft merger agreement had been prepared. At some point prior to the end of that month Mr. Aggarwal learned about the deal. He had access to information about it through a friend, Analyst 1.
On April 16, 2012 Mr. Bolandian bought 200 shares of PLXT stock and 30 call options. He and his friend, Mr. Aggarwal, had previously exchanged multiple text messages and spoke on the telephone. That same day Mr. Sadigh purchased 500 shares of PLXT stock and 30 call options. The pattern of purchases and text messages continued until the deal announcement after the close of the markets on April 30, 2012. Following the announcement the share price increased 97%. In May Messrs. Bolandian and Sadigh sold their interest in PLXT, yielding, respectively, gains of $36,200 and $41, 200.
The second deal involved the ExactTarget, Inc., a provider of email and cloud marketing services, and salesforce.com, Inc., a provider of enterprise cloud computing services. In May 2013 ExactTarget retained JPM in connection with a possible merger. The JPM deal team included Analyst 2 and Analyst 3, both of whom were friends of Mr. Aggarwal. As with the PLX deal, Messrs. Aggarwal and Bolandian exchanged a number of text messages following the retention of JPM by ExactTarget. On May 8, 2013 Mr. Sadigh made his first purchase of ExactTarget securiites. Mr. Bolandian wired additional cash to his brokerage account the same day. The next day he purchased 60 call options in ExactTarget. Mr. Sadigh bought 50 call options that day. The complaint details multiple text messages and trading by the two men prior to the deal announcement on June 4, 2013 before the opening of the market. Following the announcement the share price increased by 50%. Mr. Bolandian’s accounts had profits of about $317,000. Mr. Sadigh had profits of about $178,000.
The complaint alleges that Messrs. Aggarwal, Bolandian and Sadigh breached their duties to maintain the information in confidence. It also alleges that Messrs. Bolandian and Sadigh knew or were reckless in not knowing that they were trading on inside information. Mr. Aggarwal furnished the information to his friend in exchange for “personal benefits, direct or indirect, that were previously provided, were provided on an ongoing basis, or were to be provided in the future . . .” Those benefits included the satisfaction of making gifts to a close friend, having Mr. Bolandian hold and trade securities for him and, “on information and belief Aggarwal’s ability to share in the profits and recoup losses from securities trades in Bolandian’s account(s).” The complaint alleges violations of Exchange Act Sections 10(b) and 14(e). The case is pending. See Lit. Rel. No. 23327 (August 25, 2015).