As the Galleon trial approaches the insider trading ring
that that began with two Ropes and Gray associates and the Galleon
investigation keep spawning insider trading cases. Two new SEC civil insider
trading actions and a criminal case were filed.
In SEC v. Smith, Civil Action No. 11-CV-0535
(S.D.N.Y. Filed Jan. 26, 2011) the Commission brought an action against Adam
Smith, a former portfolio manger of the Galleon Emerging Technology funds. The
complaint, which alleges violations of Exchange Act Section 10(b), states that
Mr. Smith obtained inside information about a then pending transaction in which
Advanced Micro Devices Inc. or ADM would take over ATI Technologies, Inc. The
information came from a source that Mr. Smith had known for years. While in
possession of the information Mr. Smith caused the Galleon funds he advised to
purchase ATI shares. Those shares were later sold at a profit of over $1.3
In a second case the SEC charged Michael Cardillo, a
former trader at Galleon Management, LP, with insider trading. SEC v.
Cardillo, Civil Action No. 11-CV-11 civ 0549 (S.D.N.Y. Filed Jan 26, 2011).
Mr. Cardillo is alleged to have traded while in possession of inside
information about the acquisitions of 3Com and Axcan. As a result of that
trading the fund made over $730,000 in trading profits.
Two Ropes and Grey associates are the source of the
information according to the complaint. Former firm attorneys Arthur Cutillo
and Brien Santarias misappropriated the information about the two deals. They
then tipped Zivi Goffer, a former trader at Schottenfeld Group LLC known as
"Octopussy" because of his many sources of information. Mr. Goffer in turn
furnished the information to a trader who worked in the Galleon offices, who
furnished it to Mr. Cardillo.
Previously, Mr. Cardillo pleaded guilty to criminal
charges. Messrs. Cutillo and Santarias were named as defendants in a suit
brought by the SEC and pleaded guilty to criminal charges. The Galleon criminal
trial begins late next month.
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.
For more information:
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.