Plea Entered in NY in Massive Insider Trading Case

A former senior managing director at New Castle Partners hedge fund pleaded guilty Wednesday to securities fraud charges, admitting making $900,000 through inside trades in what authorities have said was the largest hedge fund insider trading case in history.

Mark Kurland, 61, of Mount Kisco, N.Y., remained free on $3 million bail after entering the plea in U.S. District Court in Manhattan. Kurland pleaded guilty to conspiracy to commit securities fraud and securities fraud three months after his October arrest.

Though the charges carry a potential maximum prison sentence of 25 years, Kurland’s plea agreement recommended that he spend between two-and-a-half years and three years in prison.

Kurland was the eighth person to plead guilty in a case that has resulted in charges against 21 people so far. They are accused of making tens of millions of dollars through inside trades.

At the center of the case is Raj Rajaratnam, the portfolio manager for the Galleon Group hedge fund who has been accused of pocketing as much as $50 million through a network of cheating executives at financial firms and companies privy to inside information.

Rajaratnam’s lawyer, John Dowd, has said his client looks forward to a trial to clear his name. Dowd has accused prosecutors of misrepresenting and misinterpreting conversations gleaned as a result of wiretaps, a tactic prosecutors say was unprecedented in a hedge fund case.

He also has disputed claims that Rajaratnam is a billionaire who is accurately ranked by Forbes magazine as being among the richest people in the world.

During his plea, Kurland admitted that he engaged in insider trading between August 2008 and January 2009.

“I knew that the inside information was received from a source who had an obligation to keep it confidential,” Kurland said.

Kurland’s plea deal called for him to forfeit $900,000, the proceeds of his crimes. A tentative sentencing date was set for April 27.

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SEC Approves Interpretive Guidance on Climate Change Disclosures

The SEC today voted to provide public companies with interpretive guidance on existing SEC disclosure requirements as they apply to business or legal developments relating to the issue of climate change.  The interpretive release approved today provides guidance on certain existing disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business. The relevant rules cover a company’s risk factors, business description, legal proceedings, and management discussion and analysis.

Specifically, the SEC’s interpretative guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:

Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.

Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.

Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.

Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

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Galvin Announces $5.5m in Securities Fines

Massachusetts has almost $5.5 million in administrative fines coming in from four securities firms as a result of consent orders reached with the commonwealth’s Securities Division, Massachusetts Secretary of State William F. Galvin said today.

Three of the fines were imposed in cases that arose from the freezing of the auction rate securities market nearly a year ago, said Galvin’s office, which includes the Securities Division.

(Galvin is shown at left in a Globe file photo.)

The money in these administrative fines goes into the commonwealth’s general fund, Galvin’s office said.

The fines related to aution rate securities include fines to Morgan Stanley of roughly $930,000 and to Deutsche Bank of $3.2 million, a Galvin press release said; RBC Capital Markets is expected to pay $495,601.63 next week, and a separate fine of $860,350 was paid by Merrill Lynch as part of a global settlement that was based on the firm’s failure to properly register or supervise their client associates.

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SEC Adopts New Rules for Money Market Funds

At its open meeting today the SEC adopted new rules designed to strengthen the regulatory requirements governing money market funds.  These changes result from the financial crisis and the weaknesses revealed by the Reserve Primary Fund’s “breaking the buck” in September 2008. The SEC’s new rules are intended to increase the resilience of money market funds to economic stresses and reduce the risks of runs on the funds by tightening the maturity and credit quality standards and imposing new liquidity requirements.

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SEC Seeks Galleon Wiretaps In Civil Case

The Securities and Exchange Commission is urging a judge to order Raj Rajaratnam and others to share wiretap recordings that they got from federal prosecutors, The Wall Street Journal reports. The commission wants the Galleon Group founder and others to hand over any wiretap materials they received from prosecutors from the U.S. Attorney’s office (USAO) in Manhattan.

The wiretap materials include recordings of communications made during an alleged insider-trading probe conducted by the USAO and are relevant to the commission’s allegations of the defendants tipping and trading on material nonpublic information, said Valerie Szczepanik, an SEC lawyer. Several civil defendants, including Rajaratnam and Danielle Chiesi, are also defendants in a criminal insider-trading probe by the USAO in Manhattan.

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FINRA Releases Social Media Guidance For Brokers

FINRA released its Regulatory Notice on Communications with the Pubic Through Social Networking Web Sites today, a full month ahead of schedule. The notice will undoubtedly become the standard by which firms, and FINRA, will gauge compliance in the use of sites such as LinkedIn, Facebook and Twitter. While some firms may still prohibit the use of these sites, others may take some level of comfort in the release, and permit limited use of these sites by registered persons. It is Regulatory Notice 10-06.

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SEC Proposes Amendments to Rule 10b-18

The SEC proposes amendments to Rule 10b-18 under the Securities Exchange Act of 1934, which provides issuers with a “safe harbor” from liability for manipulation when they repurchase their common stock in the market in accordance with the Rule’s manner, timing, price, and volume conditions. The proposed amendments are intended to clarify and modernize the safe harbor provisions in light of market developments since Rule 10b-18’s adoption in 1982.

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President Proposes Additional Banking Reforms

President Obama announced two additional proposals for reforming the nation’s banks.  The first, which he named the Volcker Rule after its proponent, Paul Volcker (who stood behind the President at the press briefing), would prohibit banks from owning, investing, or sponsoring hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers.  The second would  prevent the further consolidation of our financial system.  There has long been a deposit cap (10%) in place to guard against too much risk being concentrated in a single bank.  Under the proposed reform, the same principle would apply to wider forms of funding employed by large financial institutions in today’s economy.
Continuing with his verbal campaign against big banks, the President said:

So if these folks want a fight, it’s a fight I’m ready to have.  And my resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see soaring profits and obscene bonuses at some of the very firms claiming that they can’t lend more to small business, they can’t keep credit card rates low, they can’t pay a fee to refund taxpayers for the bailout without passing on the cost to shareholders or customers — that’s the claims they’re making.  It’s exactly this kind of irresponsibility that makes clear reform is necessary.

Some early press coverage of his announcement:

NYTimes, Obama Moves to Limit ‘Reckless Risks’ of Big Banks

WPost, Obama proposes tough new limits on large banks’ size and investments

From SIFMA President Tim Ryan’s response to the President’s proposals:

“Like the President proposed last year, we continue to believe the best way of achieving those goals is to establish a tough, competent and accountable systemic risk regulator. We believe providing for strengthened regulatory oversight and flexibility like that originally proposed by the Administration, as opposed to arbitrary restrictions on growth and activities, is a more effective way of mitigating systemic risk and ending ‘too big to fail’.

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Former Mich. man charged in $2M investment scheme

GRAND RAPIDS, Mich. - A former Michigan man has been indicted on mail fraud, wire fraud and money laundering charges in what prosecutors say was a scheme to defraud hundreds of investors out of more than $2 million.

The U.S. attorney’s office in Grand Rapids announced Friday that 48-year-old Ty Allan Klotz was arrested Jan. 14 in Carbondale, Ill. The indictment charging the former Mason resident was unsealed earlier in the week.

A message seeking comment was left after regular business hours Friday with a public defender appointed to represent him in Illinois.

Prosecutors say Klotz was a handyman who started trading stocks and commodities for family and friends online in 2004. The indictment says that from 2004 to 2006 he falsely promised monthly returns of 20 percent.

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7 Indicted in Galleon Insider-Trading Case

Prosecutors unveiled grand jury indictments against seven people on Thursday in the growing insider-trading case involving the Galleon Group.

The seven were among 14 people charged with multiple counts of securities fraud and conspiracy on Nov. 5 in the insider-trading investigation that began in mid-October with the arrest of Galleon’s billionaire founder, Raj Rajaratnam. Eight people charged in November agreed with prosecutors on Jan. 6 to extend their possible indictments by 21 days.

The only one of that group not indicted on Thursday was Ali Hariri, an executive of Atheros Communications, who was accused of leaking information to another hedge fund trader in the case. By Jan. 27, prosecutors may bring an indictment, or Mr. Hariri could reach a resolution of his case, or the time for discussions and assessing evidence could be extended into February.

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Tags: Galleon Insider-Trading Case
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