SEC CHARGES TWO BUSINESSMEN IN CHILE WITH INSIDER TRADING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged two business associates in Chile with insider trading on nonpublic information that one of them learned while serving on the board of directors of a pharmaceutical company.  The agency obtained a court order to freeze assets in the U.S. brokerage accounts used to conduct the trading.

The SEC alleges that Juan Cruz Bilbao Hormaeche exploited highly confidential information from CFR Pharmaceuticals S.A. board meetings at which a tender offer by Abbott Laboratories was discussed.  In a U.S. brokerage account of which he is the beneficiary, Bilbao caused the purchase of millions of dollars’ worth of American Depositary Shares (ADS) of CFR Pharmaceuticals on the basis of nonpublic information about progressing negotiations between the two companies.  Bilbao used Tomás Andrés Hurtado Rourke to place the trades in the brokerage account, and Hurtado also purchased several hundred thousand dollars’ worth of ADS in his own U.S. brokerage account.  After Abbott Laboratories publicly announced a definitive agreement to acquire CFR Pharmaceuticals and commenced the tender offer, Bilbao and Hurtado tendered the ADS they purchased.  They reaped approximately $10.6 million in illicit profits.

“Bilbao abused his position on a company’s board as he stockpiled ADS on the basis of inside information that a major payday was coming soon on those shares,” said Karen L. Martinez, Director of the SEC’s Salt Lake Regional Office.

The SEC’s complaint filed in U.S. District Court for the Southern District of New York alleges that Bilbao violated Section Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3.  The complaint also alleges Hurtado violated Sections 14(e) and 20(e) of the Exchange Act and Rule 14e-3.  The complaint seeks disgorgement of ill-gotten gains plus prejudgment interest and financial penalties in addition to permanent injunctions against further violations of these provisions of the securities laws.  Bilbao allegedly used an offshore entity to engage in the insider trading, and the SEC seeks to repatriate all illegal profits.

The SEC’s investigation was conducted by William B. McKean and the litigation will be led by Daniel J. Wadley of the Salt Lake Regional Office.

ATTORNEY AND WIFE SETTLE CHARGES OF TRADING ON CLIENT CONFIDENTIAL INFORMATION

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23167 / December 22, 2014

Securities and Exchange Commission v. Shivbir S. Grewal and Preetinder Grewal, Civil Action No. 8:14-CV-02026 (C.D. Cal., Dec. 22, 2014)

SEC Charges Corporate Attorney and Wife with Insider Trading On Client's Confidential Information

The SEC alleges that while serving as outside counsel to Spectrum Pharmaceuticals last year, Shivbir Grewal learned that the company was on the brink of announcing a significant decline in expected revenue due to an unanticipated drop in orders for its top-selling drug. Grewal sold his entire investment in Spectrum stock within 48 hours of getting the nonpublic information from company officials who sought the disclosure advice of his law firm. He tipped his wife Preetinder Grewal, who also sold all of her Spectrum shares on the basis of the nonpublic information. The day after Grewal sold her stock, Spectrum issued a press release revealing the expectation of decreased sales of the drug Fusilev and the consequent expectation of reduced revenue, and Spectrum's stock price fell more than 35 percent. Shivbir Grewal and his wife avoided losses of nearly $45,000 by selling ahead of the bad news.

The Grewals agreed to pay $90,000 to settle the SEC's charges, and Shivbir Grewal also agreed to be suspended from practicing as an attorney before the SEC on behalf of any publicly traded company or other entity regulated by the agency.

The SEC's complaint alleges that the Grewals violated Sections 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 as well as Rule 10b-5. Without admitting or denying the allegations, the Grewals agreed to be permanently enjoined from violating these provisions of the securities laws. Shivbir Grewal agreed to pay disgorgement of $30,343.17, prejudgment interest of $997.68, and a penalty of $30,343.17. Preetinder Grewal agreed to pay disgorgement of $14,400.05, prejudgment interest of $476.73, and a penalty of $14,400.05. The settlement is subject to court approval.

The SEC's investigation, which is continuing, is being conducted by Lance Jasper and Spencer Bendell in the Los Angeles Regional Office.

FORMER MANAGING DIRECTOR NASDAQ, INSIDE TRADER ORDERED TO DISGORGE NEARLY $900,000 OF PROFITS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Litigation Release No. 23156 / December 12, 2014
Securities and Exchange Commission v. Donald L. Johnson, et al., Civil Action No. 11-CV-3618 (VM) (S.D.N.Y.)
Court Orders Former Managing Director of the NASDAQ Stock Market to Disgorge More Than $898,000 in Insider Trading Profits

The Securities and Exchange Commission announced today that on November 12, 2014, the Honorable Victor Marrero of the United States District Court for the Southern District of New York entered a final judgment against defendant Donald L. Johnson, formerly a Managing Director of The NASDAQ Stock Market ("NASDAQ"), ordering Johnson to disgorge insider trading profits of $755,066.20, together with prejudgment interest thereon in the amount of $143,041.72, for a total payment of $898,107.92. Johnson consented to the entry of the final judgment. The Court previously had entered a judgment permanently enjoining Johnson for violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, representing the full injunctive relief sought by the SEC in the same civil action.

In its Complaint, filed in May 2011, the SEC had alleged that Johnson had unlawfully traded in advance of nine announcements of material nonpublic information involving NASDAQ-listed companies from August 2006 to July 2009. According to the SEC's Complaint, Johnson took advantage of both favorable and unfavorable information that was entrusted to him in confidence by NASDAQ and its listed companies, shorting stocks on several occasions and establishing long positions in other instances. The SEC alleged that Johnson reaped illicit profits in excess of $755,000 from his illegal trading.

On May 26, 2011, Johnson pleaded guilty to a federal criminal charge of securities fraud in a parallel criminal action arising out of certain of the conduct underlying the SEC's action. On August 12, 2011, Johnson was sentenced to forty-two months in prison and ordered to forfeit $755,066.

Following the entry of the final judgment against Johnson, which provided for payment of full disgorgement with prejudgment interest, the SEC voluntarily dismissed its relief defendant claim against Johnson's wife, Dalila Lopez. This concludes the SEC's civil action against Johnson.

The SEC acknowledges the assistance of the Fraud Section of the U.S. Justice Department's Criminal Division and the U.S. Postal Inspection Service. The SEC also acknowledges FINRA and NASDAQ for their assistance in this matter.

FORMER SILICON VALLEY EXECUTIVE SETTLES SEC CHARGES STEMMING FROM HEDGE FUND INSIDER TRADING CASE

Photo Credit:  Wikimedia Commons

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Former Silicon Valley Executive to Pay $1.75 Million to Settle Insider Trading Charges
On October 24, 2012, the Securities and Exchange Commission charged a former senior executive at a Silicon Valley technology company for illegally tipping convicted hedge fund manager Raj Rajaratnam with nonpublic information that allowed the Galleon hedge funds to make nearly $1 million in illicit profits.

The SEC alleges that Kris Chellam tipped Rajaratnam in December 2006 with confidential details from internal company reports indicating that Xilinx Inc. would fall short of revenue projections it had previously made publicly. The tip enabled Rajaratnam to engage in short selling of Xilinx stock to illicitly benefit the Galleon funds. Chellam tipped Rajaratnam, who was a close friend, at a time when Chellam had his own substantial investment in Galleon funds and was in discussions with Rajaratnam about prospective employment at Galleon. Chellam was hired at Galleon in May 2007.

Chellam, who lives in Saratoga, Calif., has agreed to pay more than $1.75 million to settle the SEC's charges. The settlement is subject to court approval.

According to the SEC's complaint filed in federal court in Manhattan, Xilinx announced in October 2006 the financial results for the second quarter of its 2007 fiscal year. Xilinx also provided guidance for the third quarter by projecting revenues of approximately $476 million to $490 million. Xilinx said it would update this revenue guidance on Dec. 7, 2006.

The SEC alleges that in the weeks leading up to Xilinx's December 7 update, Chellam received multiple reports indicating that the company's third quarter business results were not going to be as positive as projected in October. Chellam learned on November 21 that the top end of the projected revenue range was being lowered from $490 million to $470 million. He attended a December 4 confidential executive staff meeting where the bottom end of the revenue projection was lowered from $476 million to $455 million. On December 5, Chellam telephoned Rajaratnam and tipped him about Xilinx's worse-than-expected performance. Just minutes after the call, Galleon hedge funds controlled by Rajaratnam sold short Xilinx stock, eventually selling short more than 650,000 shares over the course of that day and the following day.

According to the SEC's complaint, the Galleon hedge funds reaped approximately $978,684 in illegal profits after the December 7 announcement by covering the substantial short position that Rajaratnam had accumulated based on Chellam's tip. Chellam had more than $1 million invested in one of the Galleon hedge funds in which Rajaratnam placed these trades. In May 2007, Chellam became the co-managing partner of the Galleon Special Opportunities Fund, a venture capital fund that focused on investments in late-stage technology companies. Chellam continued to work at Galleon until April 2009 and continued to obtain confidential information about Xilinx's financial performance and pass it along to Galleon colleagues. Chellam earned approximately $675,000 in total compensation during his employment at Galleon.

The SEC's complaint charges Chellam with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 17(a) of the Securities Act of 1933. The proposed final judgment orders Chellam to pay $675,000 in disgorgement, $106,383.05 in prejudgment interest, and a $978,684 penalty. Chellam also would be barred for a period of five years from serving as an officer or director of a public company, and permanently enjoined from future violations of these provisions of the federal securities laws. Chellam neither admits nor denies the charges.

The SEC has now charged 32 defendants in its Galleon-related enforcement actions, which have exposed widespread and repeated insider trading at numerous hedge funds and by other traders, investment professionals, and corporate insiders throughout the country. The alleged insider trading has occurred in the securities of more than 15 companies for illicit profits totaling approximately $93 million.

CEO OF PUBLIC RELATIONS FIRM CHARGED BY SEC WITH INSIDER TRADING

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., Sept. 5, 2012 – The Securities and Exchange Commission today charged the CEO of a Los Angeles-based public relations firm with insider trading on nonpublic information she learned from a client that was about to acquire a bank in a deal assisted by the Federal Deposit Insurance Corporation (FDIC).

The SEC alleges that Renee White Fraser and her firm Fraser Communications were contacted by Pasadena-based East West Bancorp (EWBC) for marketing and public relations support during its acquisition of San Francisco-based United Commercial Bank. The very next day after agreeing to take on EWBC as a client, Fraser bought 10,000 shares of EWBC stock. She sold all of her shares after EWBC’s stock price jumped 55 percent after the public announcement of the acquisition.

Fraser agreed to settle the SEC’s charges by paying $91,530.36, which is more than double what she gained in illegal profits from her alleged insider trading.

"Fraser’s client entrusted her with highly sensitive nonpublic information, and she tried to turn that into a quick side profit," said Michele W. Layne, Director of the SEC’s Los Angeles Regional Office. "Consultants in public relations or any career field cannot exploit their client relationships for an illegal payday in the stock market."

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, EWBC contacted Fraser Communications on Oct. 14, 2009, and shared material, nonpublic information about its upcoming FDIC-assisted transaction for the confidential corporate purpose of allowing Fraser and her employees to prepare marketing and public relations materials ahead of that acquisition. EWBC formally engaged Fraser’s firm on October 15 to assist EWBC with public relations work.

The SEC alleges that Fraser, who lives in Santa Monica, purchased 10,000 EWBC shares on October 16 after learning the previous day about the impending EWBC-United Commercial Bank transaction. EWBC announced the acquisition of United Commercial Bank’s banking operations on November 6. Fraser proceeded to sell 7,500 of her EWBC shares on November 10, the second trading day after the announcement. She sold the remaining 2,500 shares on June 24, 2011, for total combined profits of $43,868.

In settling the SEC’s charges without admitting or denying the allegations, Fraser agreed to pay $43,868 in disgorgement, $3,794.36 in prejudgment interest, and a $43,868 penalty. She consented to a permanent injunction from further violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Fraser also agreed to a permanent bar prohibiting her from serving as an officer or director of a public company.

The SEC’s investigation was conducted by Wendy E. Pearson and Finola H. Manvelian in the Los Angeles Regional Office. The SEC acknowledges the assistance of Financial Industry Regulatory Authority (FINRA).