The Week In Review (November 16-22, 2007): Insider Trading Here and Abroad and Backdated Options
Insider trading and backdated options dominated securities enforcement again this week, continuing the trends which have been going on for weeks.
Insider trading investigations and enforcement continued to preoccupy securities regulators both here and abroad.
A key defendant in SEC v. Guttenberg, Civil Action No. 07CV 1774 (S.D.N.Y.) settled with the SEC. Defendant Andrew A. Srebnik, a former registered representative at Bear, Stearns & Co. consented to the entry of a statutory injunction. In addition Mr. Srebnik consented to the entry of an order requiring him to pay $54,730 in disgorgement, $8,374 in prejudgment interest and a civil penalty equal to the amount of the disgorgement. In a related administrative proceeding, Mr. Srebnik consented to the entry of an order barring him from associating with any broker dealer or investment advisor. The Commission’s Litigation Release is here.
Guttenberg has been called perhaps the most significant insider trading case brought by the SEC since the late 1980’s when a series of blockbuster cases was brought against the likes of Ivan Boesky and others. Fourteen individuals and entities were named as defendants in the SEC case, while thirteen were named in the related criminal cases. Most of the defendants in those cases are currently litigating the claims.
According to a Form 10Q filed by Phoenix based First Solar, Inc., the Financial Industry Regulatory Authority is continuing an insider trading probe with respect to trading in its shares in advance of a July 9, 2007 announcement regarding certain major contracts. Following the announcement the share price of the company shot up about 13%. This is the second request for information from the self regulatory organization.
Regulators abroad are also continuing to be concerned with insider trading. For example, securities regulators in New Guinea are conducting an insider trading probe regarding the shares of Credit Corp. whose shares are traded on the Port Moresby Exchange. The probe began after the share price rose 251% in a short period of time. This is reportedly the first formal inquiry for the regulator. At the same time, securities regulators in Singapore fined Ms. Angela Yeo Yoke Foong, a senior executive with Human Resources of Systems Access Ltd., $50,000 for insider trading.
Option backdating has been a consistent preoccupation of securities regulators and in private litigation for months. That trend continued last week.
A shareholder suit against Apple based on backdated options was dismissed last week. In making the ruling, Judge Jeremy Fogel of Northern District of California reviewed the stock price and its performance and was unable to conclude that the shareholders had suffered any injury. The Court did permit shareholders to replead.
In contrast, a shareholder suit based on backdated options against the Monster World Wide founder Andrew J. McKelvey was allowed to continue. Judge Jed S. Rakoff, sitting in the Southern District of New York denied a motion to dismiss the amended complaint.
Finally, the SEC issued a closing letter to VeriSign, ending its probe of the issuer’s options backdating practices. This is one of several such letters the SEC has issued recently, signaling that the agency is cleaning up its inventory of these cases which have been going on for months. This is not to say that additional cases will not be brought – clearly they will. But, it does mean that there may be light at the end of the regulatory tunnel for those caught up in this on-going scandal.