SEC Charges Two With Insider Trading On BHP-Potash Deal

The Securities and Exchange Commission has charged two Spaniards with insider trading regarding BHP Billiton’s offer to acquire Potash Corp. of Saskatchewan.

The two men, Juan Jose Fernandez Garcia and Luis Martin Caro Sanchez, allegedly made profits of $1.1 million on options purchased in advance of the deal. Garcia is head of research at Banco Santander, which advised BHP Billiton ( BHP - news - people ) on the deal.

Separately, BHP announced it has more than doubled its profit for its fiscal year, of $12.7 billion, compared to $5.9 billion last year.

Earnings were below analyst expectations, on a 5% increase in revenue, to $52.8 billion.

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Overstock.com’s CEO Refutes Insider Trading Claims

Patrick Byrne stopped by the Forbes San Francisco Office today on his way to the 2010 innovation summit hosted by crowdsourcing software firm, Spigit, in Half Moon Bay.

Of course I asked him about his second quarter loss, and investors’ concerns about insider trading.

The latest charge was sparked by High Plains Investments, which is 100% owned by him, dumping 140,000 shares just nine days after the quarter ended, and prior to the earnings announcement.

Byrne believes Overstock.com is meeting what it’s set out to accomplish this year.

He said during today’s interview, “I said we’d break even in the first 9 months and would come out ahead full-year. I don’t worry about each quarter and worry about what Wall Street’s estimates are. I believe we’re right on track.”

Meantime, I offered my intern, Nicole Engelhardt, a recent Arizona State graduate, the opportunity to also ask him a few questions for her blog.

She asked him his advice for young entrepreneurs and the greatest lesson he learned in his career.  It was fascinating.

He shared how Overstock.com has experienced a big culture shift in recent years, and why.

Byrne believes Overstock.com is meeting what it’s set out to accomplish this year.

He said during today’s interview, “I said we’d break even in the first 9 months and would come out ahead full-year. I don’t worry about each quarter and worry about what Wall Street’s estimates are. I believe we’re right on track.”

Meantime, I offered my intern, Nicole Engelhardt, a recent Arizona State graduate, the opportunity to also ask him a few questions for her blog.

She asked him his advice for young entrepreneurs and the greatest lesson he learned in his career.  It was fascinating.

He shared how Overstock.com has experienced a big culture shift in recent years, and why.

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Judge Orders Hearing on Wiretaps in Galleon Case

A federal judge has ordered an evidentiary hearing over whether federal prosecutors acted recklessly in seeking permission to conduct wiretap surveillance of Galleon Group founder Raj Rajaratnam in a criminal insider-trading probe.

Mr. Rajaratnam is seeking to prohibit prosecutors from using wiretaps of his cellular phone or evidence obtained as a result of those wiretaps in his criminal case, saying they were improperly obtained.

A federal judge has ordered an evidentiary hearing over whether federal prosecutors acted recklessly in seeking permission to conduct wiretap surveillance of Galleon Group founder Raj Rajaratnam in a criminal insider-trading probe.

Mr. Rajaratnam is seeking to prohibit prosecutors from using wiretaps of his cellular phone or evidence obtained as a result of those wiretaps in his criminal case, saying they were improperly obtained.

“Judge Holwell’s order is also a vindication of the principle that the government must be candid with the court when seeking permission to eavesdrop on private conversations,” said John Dowd, a lawyer for Mr. Rajaratnam.

A spokeswoman for the U.S. Attorney’s office in Manhattan declined comment.

In a separate opinion made public Friday, the judge also separately denied a bid by Mr. Rajaratnam to dismiss a conspiracy count against him. The judge also denied a motion to exclude new allegations related to improper trading involving more than 20 companies disclosed by prosecutors in the months following the filing of a new indictment in the case in February. The stocks were referred to as “other companies” in the indictment and disclosed in letters by prosecutors in March and April.

In court papers, Mr. Rajaratnam’s lawyers have said the Federal Bureau of Investigation secretly recorded more than 2,400 conversations between Mr. Rajaratnam and more than 130 colleagues, employees, friends and family over a nine-month period in 2008.

Six federal judges in total approved the wiretaps over the period, prosecutors said.

In total, 21 people have been charged criminally in the insider-trading probe, and 12 have pleaded guilty to criminal charges.

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Fmr. Deloitte exec settles insider-trading charge

ASHINGTON — A Chicago-based accountant has settled civil charges that he traded stocks of companies he was auditing while he was a partner at Deloitte & Touche LLP.

The Securities and Exchange Commission said Wednesday that Thomas Flanagan and his son, Patrick Flanagan, made $487,000 by trading on information that was not yet public. Thomas Flanagan had access to the information because the companies were Deloitte clients. They included Best Buy Co. Inc., Sears Holding Corp., Walgreen Co., Motorola Inc. and others.

The pair is paying a total of $1.1 million to settle the charges. People charged with insider trading typically settle by paying an amount equal to twice their illegal profits.

The settlement bars Thomas Flanagan from serving as an accountant for public companies. Neither Flanagan admitted nor denied guilt.

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AP: Dallas Investors Accused of Insider Trading

DALLAS — Sam and Charles Wyly, Dallas billionaire investors known for their support of conservative candidates and causes, made $550 million in undisclosed profits through 13 years of insider trading, according to a Securities and Exchange Commission lawsuit filed Thursday.

In a 78-page complaint filed in a Manhattan federal court in New York, the SEC said the Wylys held and traded tens of millions of shares in companies on whose boards they served and “defrauded the investing public” by misrepresenting their ownership and trading of those stocks.

“The apparatus of the fraud was an elaborate sham system of trusts and subsidiary companies located in the Isle of Man and the Cayman Islands … created by and at the direction of the Wylys,” the SEC complaint stated.

Using this offshore system, the Wylys were able to sell stock worth more than $750 million in four public companies where they served as corporate directors. They also committed an insider trading violation at one of the companies that resulted in an unlawful gain of over $31.7 million, according to the complaint.

The complaint lists the four companies as Michaels Stores Inc., Sterling Software Inc., Sterling Commerce Inc. and Scottish Annuity & Life Holdings Ltd., which is now known as Scottish Re Group Ltd.

“The cloak of secrecy has been lifted from the complex web of foreign structures used by the Wylys to evade the securities laws,” Lorin L. Reisner, SEC deputy director of enforcement, said in a statement Thursday. “They used these structures to conceal hundreds of millions of dollars of gains in violation of the disclosure requirements for corporate insiders.”

The Wylys’ defense attorney, William A. Brewer III of Dallas, called the charges “without merit” and said the Wylys “intend to vigorously defend themselves - and expect to be fully vindicated.”

“At worst, the claims appear to represent an after-the-fact justification for a misguided six-year investigation,” Brewer said in a statement issued by his law firm.

In March, Forbes magazine estimated Sam Wyly’s net worth at $1 billion. He has given generously to Republican causes and candidates, including the Swift Boat campaign that helped re-elect President George W. Bush in 2004 by tarring his Democratic opponent, Sen. John Kerry.

The Wyly brothers, with their wives, have donated almost $2.5 million to more than 200 Republican candidates and committees at the federal level over the past two decades, according to the nonpartisan Center for Responsive Politics.

Both Presidents Bush received donations from the Wylys. Other recipients included current and former Republican senators: Kay Bailey Hutchison, John Cornyn and Phil Gramm of Texas; Sam Brownback and Bob Dole of Kansas; Elizabeth Dole of North Carolina; Mel Martinez of Florida; Judd Gregg of New Hampshire; John Thune of South Dakota; and Kit Bond of Missouri.

Also named as defendants in the lawsuit are the Wylys’ investment attorney, Michael C. French of Dallas, who was accused of covering the operation “with a false cloak of legality that was essential both to its concealment and its execution. Another defendant was the Wylys’ stockbroker, Louis J. Schaufele III of Dallas, who was accused of using his position to conceal and misrepresent the Wylys’ control over the securities and making insider trades himself.

Attorneys for French and Schaufele had no comment Thursday.

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KIA rejects insider trading allegations

The Kuwait Investment Authority (KIA) has reportedly prepared a report in response to parliamentary allegations by MP Musallam Al-Barrak that some of its officials had been involved in insider trading. A KIA insider said that the report has now been completed, adding that Finance Minister Mustafa Al-Shamali will present it to the cabinet when His Highness the Prime Minister Sheikh Nasser Al-Mohammed Al-Sabah returns to Kuwait.

The insider said that the report includes detailed answers to the points raised by the MP and refutes the accusations made against the KIA. The official said that the KIA’s staff are upset as these accusations are made every year whenever its budget is discussed in parliament. KIA staff believe that these allegations are only made for political gains, and must be strongly refuted, so that they are not repeated.
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Lenko settles over insider trading allegations

The Alberta Securities Commission has reached a settlement with Charles Lenko and his Calgary company Kylskap Creek Holdings Ltd. in relation to insider trading allegations.

Under the settlement agreement, Lenko and his company admitting to breaching Alberta securities laws when Lenko caused his company to purchase 20,000 shares of oil and gas company Profound Energy Inc. with knowledge not generally disclosed that his employer, Paramount Energy Trust, was in talks to acquire Profound Energy.

The settlement requires Lenko and Kylskap to pay the commission $15,600 to settle the allegations and contribute a further $4,750 towards costs. Lenko and Kylskap also agreed to cease trading in or purchasing securities for a period of two years.

The commission said Kylskap Creek realized a profit of $10,400 when it sold its Profound Energy shares four days after a news release announced the acquisition of Profound Energy by Paramount Energy Trust.

According to the settlement agreement, Lenko was the sole director and shareholder of Kylskap. It also described Lenko as an Alberta resident, who began working for Paramount as an evaluations engineer in December 2008. He was later promoted to become manager of mergers and acquisitions.

In that role, Lenko led a team that conducted business valuations on oil and gas companies that were potential acquisition targets for Paramount.

News of the settlement comes just weeks after Paramount Energy Trust completed a conversion to become Perpetual Energy Inc. (TSX: T. PMT, Stock Forum). Under a plan of arrangement, unitholders of the trust received shares of Perpetual in exchange for the cancellation of their trust units.

Looking for an attorney? Find a securities lawyer at the law firm directory.

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Judge Dismisses Charges in Major ‘Swaps’ Case

A federal judge dismissed a high-profile insider-trading case against a Deutsche Bank salesman and hedge-fund trader, finding the Securities and Exchange Commission offered “no evidence” to support its allegations.

In a 122-page opinion, U.S. District Judge John Koeltl rejected key components of the SEC’s case against Deutsche salesman Jon-Paul Rorech and Renato Negrin, a manager of the Millennium hedge fund.

The SEC sued both men, alleging they shared confidential information about a debt restructuring and then traded swaps, a type of derivative, based on that information. The defense maintained no inside information was exchanged.

Richard Strassberg, a lawyer for Mr. Rorech, called the decision a “complete vindication” for his client. Mr. Negrin said in a statement, “I’m grateful the court was able to reach the right decision based on all of the evidence. I look forward very much to putting all of this behind me.”

An SEC spokesman said the agency is reviewing the decision.

The case represented the SEC’s first attempt to extend its reach beyond stock and other securities and into the murky field of swaps and other derivatives contracts. The judge found the SEC did have jurisdiction over swaps in this context but didn’t agree with the allegations that the contracts were bought based on inside information.

The decision doesn’t appear to impair the SEC’s jurisdiction over swaps. The financial regulation bill heading toward passage in Congress also makes clear the SEC’s authority.
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Rajaratnam Says Cricket, Not Crime, Was on His Mind

Galleon Group LLC co-founder Raj Rajaratnam had a ready answer for every question U.S. regulators put to him about possible insider trading three years ago.

“AMD on August 1st, now 13th,” Rajaratnam wrote in an Aug. 2, 2006, instant message sent to an RBC Capital Markets analyst. The analyst responded: “Hey, for the tickets have to choose package B?”

“What’s going on?” Securities and Exchange Commission lawyer Andrew Michaelson asked Rajaratnam during a formal agency deposition on June 7, 2007. He wanted to know about the link between “package B” and the ticker symbol for computer component-maker Advanced Micro Devices Inc.

“We were going to see cricket in Trinidad,” he told Michaelson. “We were talking about the cricket packages.” Rajaratnam said he didn’t recall the significance of Aug. 13.

Rajaratnam was indicted in December as part of the largest- ever hedge fund insider trading prosecution. The previously undisclosed deposition, taken at the SEC’s New York office as part of an agency investigation, was filed May 7 in Manhattan federal court by defense lawyers in the criminal case.

Rajaratnam, who has pleaded not guilty, is scheduled for trial in October for conspiracy and securities fraud. He faces more than 10 years in prison if convicted. Government lawyers, including Michaelson, who joined the prosecution team, claim that Rajaratnam used inside tips to trade in AMD shares in 2008.

Testifies at Trial

Prosecutors may use the deposition to question Rajaratnam, 52, if he testifies at trial, said Jacob Frenkel, a former federal prosecutor who is now a partner at Shulman Rogers Gandal Pordy & Eckerin in Potomac, Maryland.

“His prior testimony before the SEC could be used for impeachment — to show inconsistencies” in his account, said Frenkel, who isn’t involved in the Galleon investigation.

The deposition was filed as part of a defense effort to suppress secret government wiretaps of Rajaratnam, evidence central to the prosecution’s case. His attorneys claim Justice Department lawyers misled the judge who approved the wiretap.

At trial, Rajaratnam’s defense team may be able to point to the daylong deposition as evidence that he was “extremely forthcoming” with the investigators probing Galleon, said lawyer Roger Zuckerman of Zuckerman Spaeder LLP in Washington.

‘Strong Indications’

At the same time, Zuckerman said there are “strong indications” that prosecutors may have misled the judge by not disclosing this and other events related to the SEC’s probe in their 2008 request for a wiretap of Rajaratnam’s cell phone.
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New Castle Founder Kurland Seeks Probation For Insider-Trading

New Castle Partners founder Mark Kurland has asked a judge for mercy when he is sentenced for his role in the Galleon Group insider-trading scandal.

A lawyer for Kurland, Patrick Smith, has asked a judge to impose probation for Kurland’s “minor” part in the largest insider-trading case in U.S. history. Kurland pleaded guilty in January to conspiracy and securities fraud and is set to be the first person in the Galleon case to be sentenced, on May 27.

Kurland faces up to two-and-a-half-years in prison. But Smith argued that probation will suffice, despite the fact that his client has refused to cooperate with investigators, because Kurland did not personally profit from the scheme.

“Mark personally earned nothing and it was never part of any plan or discussion he would,” Smith wrote to U.S. District Judge Victor Marrero. Smith added that the $900,000 New Castle earned on one of the trades was “of no consequence to the performance of a portfolio of approximately $1 billion.”

While Kurland has not cooperated and did not implicate anyone else in his plea, he throws two of the 20 other people charged in the case under the bus in his sentencing brief.

Smith said Kurland knew that the information he received from Danielle Chiesi, another former New Castle executive and Galleon founder Raj Rajaratnam’s co-defendant in the case, was confidential, and even listened in on a telephone call between Chiesi and one of her alleged tipsters, former IBM executive Robert Moffat.

“Chiesi was an advocate for her trading ideas,” Smith wrote. “Regrettably, Mark permitted some of these discussions with Chiesi to go too far. Chiesi gave to Mark what he knew to be misappropriated material non-public information concerning three companies.”

Smith added, “Chiesi is responsible for involving him in the unlawful inside trading conspiracy. Mark is significantly less culpable than Chiesi and Moffat.”

Chiesi has pleaded not guilty in the case and is set to go on trial in October. Moffat pleaded guilty to conspiracy and securities fraud charges in March.

Smith called Kurland’s actions “the worst decision of his life.”

“He destroyed the career and reputation he had carefully built over 25 years by allowing the funds he managed to trade while he had inside information about three companies.”

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