November 6, 2009

More Insider Trading Charges from the SEC

Following up on the giant insider-trading case a few weeks ago against Raj Rajaratnam and Galleon Management, the SEC brought insider trading charges against 13 more yesterday, including charges against a pair of lawyers for tipping inside information in exchange for kickbacks.

This story was interesting not only for the involvement of Wall Street lawyers (see the WSJ Law Blog for a discussion of how often lawyers are involved in insider trading – answer: it’s rare), but for the colorful nickname of one of the defendants – “the Octopussy” – as well as notable details about the use of disposable cell phones. As noted by this NY Times article, this story has Hollywood potential written all over it – one of the main characters is named “Roomy Khan”! Another is “Deep Shah”!

Enforcement Director Rob Khuzami gave these remarks about how insider trading is a corruption of the basic principle that the markets are fair, including these memorable words:

Goffer would promptly tip the other traders we charge today, at times going to such extraordinary lengths to cover his tracks that he used disposable cell phones.

He gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled “you” and “me.”

After the insider trading was complete, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half.

He threw away half of the phone, and then instructed his tippee to dispose of the other half.

Needless to say, these antics might be appropriate in a James Bond movie.

But they have no place among Wall Street professionals who participate in our capital markets.

The ethical and legal judgments of these defendants were flatly wrong.

They weren’t close calls.
They weren’t nuanced.
They weren’t in gray areas.

As an aside, the SEC’s new Division of Risk, Strategy, and Financial Innovation is getting off the ground by announcing the hiring of three senior people…

US Supreme Court: Oral Arguments for Jones v. Harris

Last month, I blogged about the importance of the US Supreme Court’s Jones v. Harris case since it could impact the fiduciary duties of directors, including this podcast. Oral arguments were held this week and here are some reactions:

– “The Conglomerate Blog” has at least a half dozen entries – scroll down

– “Race to the Bottom Blog” has a two-parter

The NYSE Speaks ’09: Latest Developments and Interpretations

We have posted the transcript from our recent webcast: “The NYSE Speaks ’09: Latest Developments and Interpretations.”

– Broc Romanek