SEC-USAO Halt Insider Trading Ring
Separating the source of the inside information from the trader with a buffer was supposed to shield everyone from the watchful eye of enforcement officials. If there were questions, research reports would be produced to support the purchase. This was the theory of three friends who used inside information stolen from Simpson Thacher & Bartlett LLP. The scheme was profitable, garnering over $5.6 million in illicit insider trading profits. Ultimately the concealment scheme was not. Each one of the men has now been charged with insider trading by the SEC and the U.S. Attorney’s Office.
Frank Tamayo was the man in the middle. Currently employed as a mortgage broker, he has been friends with Steven Metro since both attended law school years ago. He has also been friends with Vladimir Eydelman for years. Mr. Metro is a law school graduate who at one time worked for Simpson Thatcher as a managing clerk. Through that position he had access to inside information on deals in which the law firm was involved. Mr. Eydelman was a registered representative with Oppenheimer & Co. and before that with Morgan Stanley.
The scheme traces to February 2009 at a New York City bar. Messrs. Tamayo and Metro met with friends for drinks but separated and discussed stocks. One was Mr. Tamayo’s holdings in Sirius XM Radio. Mr. Tamayo expressed concern that the firm would go bankrupt. Mr. Metro assured his friend that it would not because Liberty Media Corporation planned to invest over $500 million in the company. He knew this from reviewing Simpson Thatcher documents he assured his friend.
Subsequently, the two men called broker Eydelman and ordered additional Sirius shares for Mr. Tamayo’s account. When the broker expressed concern about the financial condition of Sirius he was reassured by his client that information from a reliable source said Liberty would invest $500 million in the company. 300,000 shares were purchased. A friend of Mr. Tamayo also purchased shares. When the Liberty-Sirius deal was announced on February 17, 2009 Mr. Tamayo had potential profits of about $157,892. His friend had profits of about $54,922. When Mr. Tamayo offered $7,000 to his friend as a “thank you” he was told to keep it in his account.
From this beginning a scheme unfolded in which the men traded on inside information stolen from Simpson Thatcher thirteen times. The mechanics of the scheme were designed to shield the three from capture:
- Mr. Metro accessed the law firm’s non-public information through the computer system to identify possible corporate transactions. Once the information was obtained he would ask Mr. Tamayo to meet in person.
- Messrs. Metro and Tamayo typically met at a New York City coffee shop. Mr. Metro would show his friend his cell phone screen on which he displayed the names and/or ticker symbols of the two companies involved and then point to the name of the acquirer. The approximate price and the announcement date were also conveyed.
- Messrs. Eydelman and Tamayo would meet later near the information booth in Grand Central Station. There Mr. Tamayo would walk up to the broker, show him a post-it or napkin with the name of the company written on it and then either chew the paper up or eat it.
- Mr. Eydelman then returned to his office and researched the company. Reports with a recommendation would be transmitted to Mr. Tamayo. The stock would be purchased.
Since the source of the information did not directly contact the broker – Mr. Tamayo was the buffer – the three were not supposed to be apprehended, and if there were questions research was available to substantiate the reasons for the trade, according to the theory. Yet previously Messrs. Eydelman and Metro were named as defendants in an insider trading case by the SEC and charged with criminal securities fraud by the U.S. Attorney’s Office for New Jersey. SEC v. Eydelman (D.N.J. Filed March 19, 2014). Now the SEC and the New Jersey U.S. Attorney’s Office have charged Mr. Tamayo with insider trading. SEC v. Tamayon (D. N. J. Filed September 19, 2014). The Commission’s complaint alleges violations of Exchange Act Sections 10(b) and 14(e) and Securities Act Section 17(a). The case is pending.