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CCCA62_014,016.qxd:CCCA_V1No2_Dept-CrossBdr-V1.qxd 09/14/2007 02:22 PM Page 14 Cross Border Inside job The SEC is turning the spotlight on pre-M&A insider trading. esponding to stinging criticism in sub-schemes: trading ahead of UBS analyst Jones,a prominent Hong Kong banker,that RJanuary of this year by a U.S. recommendations, and trading in advance it plans to commence an action against Senator of “extraordinarily lax enforce- of corporate acquisition announcements. him.The action relates to an insider trading ment” measures, the United States At the centre of the second sub-scheme investigation of a Hong Kong couple who Securities and Exchange Commission was Randi Collotta, a lawyer in the global bought Dow Jones shares ahead of the pub- (SEC) had by springtime initiated sev- compliance department of Morgan Stanley. lic announcement that News Corporation eral insider trading cases. In this position,she became aware of acqui- would bid for the company. One was the UBS/Morgan Stanley sitions involving Morgan Stanley clients. Although the SEC charges have not been case, which Director of Enforcement She and her husband used this information resolved in the UBS/Morgan Stanley or Linda Chatman Thomsen called “one of to tip a broker in Florida, who traded and Credit Suisse cases, in each complaint the the most pervasiveWall Street insider trad- further tipped downstream, eventually gen- Commission seeks to enjoin the defendants ing rings since the days of Ivan Boesky erating a $600,000 profit. from illegal insider trading and to require and Dennis Levine.” This development Another significant case in May in- disgorgement of profits and payment of shows revitalized enforcement in this area, volved international tipping and trading monetary penalties. In their criminal case, as the SEC is targeting a well-established by another investment banker, this time in the Collottas pleaded guilty to charges of insider trading issue:tipping and trading in the NewYork office of Credit Suisse. The conspiracy and securities fraud and await advance of mergers and acquisitions. insider trading allegedly occurred in sentencing in September. In July, Naseem advance of nine pending merg- and the tippee in Pakistan were indicted for ers, including the $32 billion conspiracy to commit securities fraud. “ Employers not directly engaged buyout of TXU Corp. The cases were individuals, companies should Even though the defendants in these Credit Suisse employee, Hafiz in insider trading also may be held be aware that these schemes can also affect Naseem, is accused of tipping an liable under the “controlling ” in turn traded on the informa- trading also may be held liable under the person” liability provision. investment banker in Pakistan the reputation of the entities involved. Employers not directly engaged in insider about the pending mergers,who tion and netted $7.5 million. section 21A(a)(3) of the Securities Exchange In the UBS/Morgan Stanley case, it’s Thomsen commented that these charges “controlling person” liability provision, alleged that the 14 defendants creatively demonstrated the agency’s “aggressive pur- Act of 1934. attempted to hide their illegal conduct, suit of people who commit such violations, This provision allows any entity that con- holding secret meetings at the Oyster Bar in no matter where in the world the evidence trolled someone who commits an insider ISTOCKPHOTO.COM Manhattan and using disposable cell phones. may lead.” Reflecting that philosophy, the trading violation to be held independently The scheme involved two interconnected SEC has also advised a director of Dow liable, subject to defences, for substantial 14 CCCA Canadian Corporate Counsel Association FALL 2007
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