SEC Brings Additional Charges in Its Ongoing Investigations Into Two Previously Identified Insider Trading Rings
Hedge Fund Advisory Firm and Two Wall Street Professionals Are Latest Charged
FOR IMMEDIATE RELEASE 2010-220
Washington, D.C., Nov. 12, 2010 — The Securities and Exchange Commission today charged additional defendants in its ongoing investigations related to two enforcement actions, SEC v. Galleon Management, LP, et al., 09-CV-8811 (S.D.N.Y.) (JSR) and SEC v. Cutillo, et al., 09-CV-9208 (S.D.N.Y.) (RJS). The insider trading rings identified in these enforcement actions include several prominent hedge funds, high-profile hedge fund managers, Wall Street professionals such as attorneys, professional traders, and senior corporate executives.
In a complaint related to SEC v. Galleon, the SEC today charged Thomas Hardin, a former managing director at a New York-based hedge fund investment adviser, Lanexa Management LLC, for insider trading in connection with two corporate takeovers and a quarterly earnings announcement. The illicit profits at Lanexa resulting from Hardin’s conduct alleged in this filing exceed $950,000.
In separate complaints related to SEC v. Cutillo, et al., the SEC charged Mr. Hardin as well as two other defendants, Lanexa Management LLC, and former Schottenfeld Group LLC trader Franz Tudor, for insider trading in connection with corporate acquisitions. The illicit profits alleged in these filings total approximately $715,000.
“Today’s additional charges demonstrate the SEC’s ongoing crackdown on insider trading on Wall Street,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “When greed leads hedge funds and other market professionals to illegally trade on inside information, the SEC will take aggressive action.”
Today’s Filing Related to SEC v. Galleon Management, LP, et al.
In SEC v. Galleon, the SEC has, as of today, charged twenty-two defendants and alleged widespread and repeated insider trading at numerous hedge funds, including Galleon, a multi-billion dollar New York hedge fund complex founded and controlled by defendant Raj Rajaratnam, and by other professional traders in the securities of fourteen issuers generating illicit profits totaling approximately $53 million. See Lit. Rel. Nos. 21255, 21284 and 21397.
The SEC’s most recent complaint related to this action, filed earlier today in federal court in Manhattan, charges Hardin with trading in the securities of Hilton, Google and Kronos based on material nonpublic information that Hardin allegedly received from Roomy Khan, an individual investor who had, herself, received such information from various sources.
The SEC’s complaint alleges that Khan tipped Hardin to inside information she received from a Moody’s rating agency analyst, about an impending takeover of Hilton by The Blackstone Group. According to the allegations, Hardin traded on the information on behalf of Lanexa and also passed the information to others, who similarly traded on the information. Khan also shared with Hardin inside information she received from an employee at Market Street Partners, an investor relations consulting firm that did work for Google, about Google’s Q2 2007 earnings. Hardin traded on the information on behalf of Lanexa and also tipped others. Finally, Khan tipped Hardin to inside information she received about the impending acquisition of Kronos by Hellman & Friedman. Hardin traded on the information on behalf of Lanexa and also tipped others, who traded on the information.
The SEC’s complaint charges Hardin with violations of the antifraud provisions of the federal securities laws, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining Hardin from future violations of the antifraud provisions, ordering him to disgorge ill-gotten gains plus prejudgment interest, and ordering him to pay financial penalties.
Today’s Filing Related to SEC v. Cutillo, et al.
In connection with SEC v. Cutillo, the SEC has, to date, charged thirteen defendants and alleged widespread insider trading based on material, nonpublic information misappropriated by two former lawyers at the international law firm of Ropes & Gray LLP. See Lit. Rel. Nos. 21283 and 21332.
In its latest enforcement action in this matter, the SEC alleges that a Lanexa-managed hedge fund and Hardin reaped approximately $640,000 in illegal profits by insider trading based on confidential information about an impending acquisition involving 3Com Corp. The SEC also alleges that Tudor made approximately $75,000 in illicit profits by trading on material, nonpublic information concerning the proposed acquisition of Axcan Pharma Inc.
According to the SEC’s complaint against Lanexa Management and Hardin, filed in federal court in Manhattan, the inside information about the 3Com acquisition that was obtained by Hardin was derived from Santarlas and Cutillo, who were privy to the confidential details through their work at the international law firm of Ropes & Gray LLP. Cutillo and Santarlas allegedly tipped this inside information through another attorney to Zvi Goffer, a former proprietary trader at Schottenfeld, in exchange for kickbacks. Goffer then tipped the inside information to fellow Schottenfeld trader Gautham Shankar, who then tipped Hardin. Goffer, Shankar and Schottenfeld were among those previously charged for their roles in the insider trading rings.
According to the SEC’s complaint against Tudor, also filed in federal court in Manhattan, Goffer also tipped material, nonpublic information about the proposed acquisition of Axcan to Tudor. Based on the inside information, Tudor purchased shares of Axcan in two separate personal trading accounts as well as in a proprietary account at Schottenfeld.
The SEC’s complaints charge Lanexa Management, Hardin, and Tudor with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaints seek permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of financial penalties.
The SEC’s investigations related to both enforcement actions are continuing.
# # #
For more information about SEC v. Galleon, contact:
Director, SEC’s New York Regional Office
Associate Director, SEC’s New York Regional Office
Deputy Chief, Market Abuse Unit, Division of Enforcement
For more information about SEC v. Cutillo, contact:
Associate Director, Division of Enforcement
Robert B. Kaplan
Co-Chief, Asset Management Unit, Division of Enforcement
Brian O. Quinn
Assistant Director, Division of Enforcement