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Financial reform and the implementing Dodd-Frank continue
to be key topics for market regulators. The SEC, CFTC and others are busy
writing rules to implement the Act. Many on Capital Hill are studying ways to
limits or repeal portions of the landmark legislation, particularly in view of
the recent mid-term election results.
Despite this focus, a critical concern for regulators
here and around the globe continues to be insider trading. In the Southern
District of New York more guilty pleas were unsealed on Friday in the seemingly
ever-expanding Galleon insider trading case (here). The plea
agreements are with Tom Hardin and Franz Tudor. Mr. Hardin is the former Lanexa
Global Management trader referred to in court papers as Tipper X, according to a Bloomberg report. He pleaded guilty last
December and is cooperating with the government. Mr. Tudor is a former Galleon
trader who pleaded guilty last month. The government now has fourteen guilty
pleas in the Galleon related insider trading cases. The primary cases mired in
discovery disputes, but are still moving toward trial.
The SEC also filed charges against Messrs. Hardin and
Tudor. In SEC v. Galleon, the Commission added Mr. Hardin as a
defendant. The amended complaint details three instances in which Mr. Hardin
traded on inside he obtained from Roomy Khan (here) before
passing it on to others. In one, Ms. Khan obtained information about the
takeover of Hilton by The Blackstone Group from a Moody's rating agency
analyst. In another, she furnished Mr. Harding with inside information about
Google's second quarter 2007 earnings. The information came from a consulting
firm that worked for the company. Mr. Hardin also received inside information
from Ms. Khan. It concerned the acquisition of Kronos by Hellman &
The SEC also filed two new cases related to SEC v.
discussed here). One is against Mr. Hardin and Lanexa, while the other
names Mr. Tudor as a defendant. The complaint against Mr. Hardin and the fund
claims they traded on inside information about the acquisition of 3Com. Mr.
Hardin is alleged to have obtained the information through a chain of tips
which began at the law firm of Ropes & Gray with two attorneys, Messrs.
Santarias and Cutillo, was passed it to another attorney, Zvi Goffer who was a
proprietary trader at Schottenfeld, who then passed it to another trader at the
firm, Gautham Shankar.
Similarly, the complaint against Mr. Tudor claims that he
received inside information from Mr. Goffer about the proposed acquisition of
Axcan and traded. These cases are in litigation.
DOJ and the SEC are not the only regulators focused on
insider trading. In the UK the FSA has been prosecuting a series of insider
trading actions. Recently, the regulator executed warrants in the UK and
Germany related to an insider dealing case (here). The FSA
also announced a new initiative which will require firms to record cell phone
calls of certain employees as part of its on-going crack down on insider
Japan's financial regulator is also considering
broadening its insider trading prohibitions. The regulator is, according to a Bloomberg report, considering broadening
those restrictions to include persons with second and third hand information.
The new rules would supplement existing regulations which apply to company
executives, employees and underwriters. Presumably the regulations under
consideration would reach situations like those detailed in the SEC actions
announced on Friday.
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.
Insider trading is discussed in greater detail in 6 A.A. Sommer
Jr., Securities Law Techniques, Ch. 80 (Matthew Bender Rev. Ed.), "
Insider Trading Under Section 10(b) of the Securities Exchange Act," which
can be accessed online by subscribers of lexis.com. This
treatise is also available in the LexisNexis online store.