This Week In Securities Litigation (January 4-10, 2008): Insider Trading and Option Backdating
As SEC and DOJ enforcement officials continue their renewed war on insider trading, two high profile cases were back in court this week. First, Eugene Plotkin, a former Goldman Sachs analyst, appeared in New York for sentencing. Mr. Plotkin previously pled guilty to one count of conspiracy and eight counts of insider trading in what is clearly one of the most unusual insider trading cases (discussed here).
Mr. Plotkin is one of the defendants in the “Merrill Lynch/Business Week” insider trading cases filed by the SEC and the U.S. Attorney’s Office for the Southern District of New York. Those cases focused on what was essentially a roving band searching for insider trading opportunities. In one scheme, they traded on take over information obtained from a Merrill Lynch analyst. In a second, information was obtained about forthcoming issues of Business Week. In another, information about the deliberations of a federal grand jury regarding Bristol Myers was used to illegally trade. The cases began in 2005 when the SEC filed an action based on trading in the options of Reebok International in advance of Reebok’s merger with Adidas. SEC v. Anticevic, 05 Civ. 6991 (S.D.N. Y. Filed August 5, 2005).
This week, the court room portion of the cases ended for Mr. Plotkin. He was sentenced to 57 months in prison, order to pay a $10,000 fine and to forfeit $6.7 million which represented the proceeds from his insider trading schemes.
The SEC’s two year old Placer Dome insider trading case was also back in court, but this time in New Westminster, British Columbia. The case started on November 2, 2005 when the Commission filed a civil injunctive action and obtained a temporary freeze order in the Southern District of New York against Unknown Purchasers of Call Options for the common stock of Placer Dome, Inc. According to the complaint, on October 31 2005, Barrick Gold Corp., a Canadian gold mining company, announced a take over offer for Placer Dome. Following the announcement, the share price of Placer rose 20%. Shortly prior to the announcement, unknown buyers purchased over 10,000 call option contracts for Placer through a U.S. broker-dealer. Following the take over announcement, the holders of the options had an unrealized illegal profit of over $1.9 million.
In court this week, the SEC sought to obtain evidence to support its claims from John Brodie. According to the SEC’s papers, Mr. Brodie is suspected of trading in advance of the take over for Placer and believed to have information about the alleged scheme. While the Commission initially sought documents and testimony from Mr. Brodie, it has now limited the request to only documents. This case, like a number of the high profile insider trading cases brought in early 2007 (discussed here) was brought within days of the take over announcement, based on little more than the basic trading information. SEC v. One or More Unknown Purchasers of Call Options for the Common Stock of Placer Dome Inc., Civil Action No. 05-CV 9300 (S.D.N.Y. Filed Nov. 2, 2005).
Finally, former Brocade CEO Gregory Reyes was back in court this week trying to overturn his conviction on ten charges of conspiracy, fraud, making false filings and falsifying records based on option backdating (discussed here). In his motion, Mr. Reyes argued he should be given a new trial because the key government witness against him, former Brocade employee Elizabeth Moore, recanted her testimony, claiming that she had been pressured by the government. Ms. Moore, according to counsel for Mr. Reyes, claims she lied on the witness stand, but refuses to testify without immunity from possible perjury charges.
While Ms. Moore’s testimony was repeatedly cited by prosecutors in arguing that Mr. Reyes knew the backdating scheme was wrong and that he tried to cover it up, the court denied the motion. In its ruling, the court noted that there was more than sufficient evidence to support the convictions of Mr. Reyes.