From the SEC's press release alleging
that a former director at UBS shared inside information via "coded" e-mails
with college friends:
thought it was clever to use code words such as frequent flyer miles and
wedding registry gifts to conceal their insider trading scheme," said Robert
Khuzami, Director of the SEC's Division of Enforcement. "These words were code
for nothing more than 'we are breaking the law.'"
According to the SEC's
complaint defendants Igor Poteroba, Aleksey Koval, and Alexander
Vorobiev attended college together in the 1990s at the University of New Haven
in Connecticut. Poteroba joined UBS and was eventually promoted to Executive
Director. Koval was living in California and Vorobiev in Canada.
Here's a sample of the coded e-mails
the group used to trade ahead of deals that Poteroba knew about from his work
(buying ahead of MGI Pharma):
Poteroba: Keep me posted as to how *
* * [m]any frequent flier miles you've got this far and how many you plan to
get by Friday[.] Will be in Boston tomorrow[.] Plans for a trip look fine so
far[.] Worst case we can get a refund by Monday, hopefully we do not[.]
Koval: As I mentioned, I just got
into this frequent flyer program. I got five thousand of sign-in bonus miles
but thinking maybe if I fly often, I will get additional three to five K miles.
Poteroba: On the frequent flyer
program topic you mentioned, I think you should sign up for another flight, if
you can, since they are providing bonus mileage soon[.]
So creative! Or, how about
this one (ahead of ID Biomedical):
Let me know if
you finished your recent harvest arrangements and how many kilos are available
for my parents. They are in Turkey now and could use some once they are back.
Koval: This year the potato yield was not
as high as the last one. Whatever is collected is now being transported in the
warehouse, with special climate conditions, from where it is going to be
available for delivery. My estimates are about 6.8 kilo per square yard. ...Of
course, some potato [sic] need to be left for the next year [sic] seeds [sic]
but it should not be a concern since I have a vendor who will provide enough
once the spring comes.
These guys are geniuses. Who
could ever see through this code (buying ahead of Molecular Devices)?
Line: Let me
know if you've started your wedding registry at Macy's
Poteroba: Happy to talk about sales items and
etc. ... sale ends soon ...so hurry up.
Koval: Yep, I have set it up.
Better do it now when they have [a] sale. I could not believe how many things
one needs once engaged. Single life was much easier if you ask me. It is always
[a] good idea to know about coupons available. I try to follow up on the
rebates programs currently in place but often miss many due to lack of time.
Thanks for pointing it out to me. ... Although wedding day is not yet announced,
I hope to get all the important items ahead of time: I even started buying
small things that [are] usually not important until you need them.
ends on Friday...see if you can get registered for as many items as possible...more
you get now...more you save...We should start tracking these events more actively.
OK, here's a little gratuitous
advice for young lawyers: don't trade on your own deals and don't have your
college roommates trade on your deals, either. A set of anomalous trades
pop up on the screen in advance of an announced deal. All those names get
fed through the (commercially available) database and in about 15 seconds the
machine spits out a match between the name on the trade and the name of an
investment banker at the firm advising on the deal noting that they both went
to the University of New Haven in the 1990s. Please. It's not worth
Someone asked me recently what I
thought was behind the recent upswing in insider trading activity -
particularly in the merger space. In truth it's really hard to say.
On the one hand, maybe there's not really an upswing, but rather with a change
in administration we have a new set of cops on the beat who might be more
interested in sending a message to the marketplace, especially in light of the
market collapse, that integrity in the market is important.
On the other hand, and I know this
is the feeling of some regulators, it's been over two decades since we've gone
through a major series of insider trading prosecutions. Maybe the value
of deterrence purchased in the 1980s with those prosecutions has worn off on a
younger generation. Indeed, if you look this group, they weren't even in
the US as young people to absorb those lessons. They probably think that
Rudy Giuliani was only the Mayor of New York! So, no real answer there,
but two reasonable hypotheses.
At least this latest ring had no
lawyers in the mix! Small blessings.
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