FBI: “Manhattan U.S. Attorney and FBI Assistant Director in Charge Announce Insider Trading Charges Against Director of Market Intelligence at Investor Relations Firm”

August 26, 2014

The Federal Bureau of Investigation (FBI) on August 26, 2014 released the following:

“Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today that MICHAEL A. LUCARELLI, the Director of Market Intelligence at Lippert/Heilshorn & Associates, Inc. (“LHA”), an investor relations firm, was arrested this morning on 13 counts of insider trading. LUCARELLI is expected to be presented today in Manhattan federal court before United States Magistrate Judge James L. Cott.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, and despite the well-known parade of convicted insider trading perpetrators over the past several years, Michael Lucarelli was not deterred and violated both his company’s policies and his responsibility to its clients by trading on material nonpublic information for his personal financial gain. For the over $500,000 he earned from his illicit trades he is charged with 13 counts of securities fraud.”

FBI Assistant Director-in-Charge George Venizelos said: “Instead of doing his job, Lucarelli spent his days setting up brokerage accounts to make illegal trades using inside information from unwitting clients. He violated the responsibility he had to both company and clients. He also broke the law and today finds himself under arrest and charged in a thirteen count complaint.”

According to the Complaint unsealed in Manhattan federal court:

From at least August 2013 through at least August 2014, LUCARELLI engaged in an insider trading scheme to use and trade upon material non-public information that he acquired during his employment at LHA, an investor relations firm based in Manhattan. Specifically, LUCARELLI, as an LHA employee, had access to working drafts of press releases prepared by LHA for its clients prior to their issuance to the investing public. Those draft press releases contained material, non-public information about business events and announcements relating to LHA’s clients.

In violation of LHA’s policies and in breach of his duties to LHA and its clients, on multiple occasions, LUCARELLI took positions in the stock of LHA clients shortly before the announcement by these companies of material information through press releases prepared by LHA. Shortly following the issuance of the press releases drafted by LHA, LUCARELLI exited the positions in these securities that he had acquired prior to the issuance, thereby profiting on the movement in the stock price.

LUCARELLI repeatedly traded in LHA client securities despite LHA’s written code of conduct, which strictly prohibited LHA employees from trading in any security issued by an LHA client. LUCARELLI carried out his scheme in at least four different brokerage accounts. When opening new brokerage accounts through which to conduct his illegal trades, LUCARELLI did not reveal his affiliation with LHA. And, on two occasions, LUCARELLI opened new brokerage accounts soon after his ability to trade in other accounts had been suspended by the respective brokerage firms.

On or about July 24, 2014, the FBI obtained a search warrant to search LUCARELLI’s office at LHA for evidence of his insider trading activities. During that search, which was conducted without LUCARELLI’s knowledge, the FBI located a locked briefcase which, when opened, contained a draft press release for LHA client, TREX Company (“TREX”). That press release was marked “DRAFT” and contained TREX’s second fiscal quarter 2014 financial results. The following day, after the FBI completed the search, LUCARELLI started purchasing shares of TREX. Between July 25, 2014 and August 1, 2014, LUCARELLI took a net position of 37,400 shares of TREX. Then, on August 4, 2014, shortly before the market opened, TREX issued a press release announcing its second fiscal quarter 2014 financial results. Among other things, TREX announced that sales and earnings before taxes had increased 23 percent and 62 percent, respectively, in comparison with the comparable period in 2013. TREX also issued revenue guidance for the third fiscal quarter of 2014, which was a 27 percent increase over the comparable period in 2013. Within two hours of the announcement, LUCARELLI sold 35,058 of the 37,400 TREX shares he previously purchased. Those sales yielded a profit of almost $90,000.

As a result of the 13 instances of insider trading alleged in the Complaint, LUCARELLI earned at least $538,215.32 in illicit proceeds. Furthermore, the FBI has discovered numerous additional trades that LUCARELLI conducted in LHA client securities and that exhibit a similar pattern of fraud. The FBI’s investigation is ongoing.

* * *

LUCARELLI is charged with 13 counts of securities fraud. The securities fraud counts each carry a maximum sentence of 20 years in prison and a maximum fine of $5 million, or twice the gross gain or loss from the offense. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.

Mr. Bharara praised the investigative work of the FBI and thanked the SEC, which has filed civil charges in a separate action.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit http://www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Brian Blais and Damian Williams are in charge of the prosecution. Assistant U.S. Attorney Carolina Fornos of the Office’s Money Laundering and Asset Forfeiture Unit is responsible for the forfeiture of assets.

The allegations contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

Federal Crimes – Appeal

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


FBI: “Manhattan U.S. Attorney and FBI Assistant Director in Charge Announce Insider Trading Charges Against Four SAC Capital Management Companies and SAC Portfolio Manager”

July 25, 2013

The Federal Bureau of Investigation (FBI) on July 25, 2013 released the following:

SAC Management Companies Allegedly Engaged in Decade-Long Insider Trading Scheme on a Scale Without Known Precedent in Hedge Fund Industry; SAC Portfolio Manager Responsible for $1.25 Billion “Special Situations” Fund Has Pled Guilty to Insider Trading

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (FBI), announced today the unsealing of insider trading charges against four companies—S.A.C. CAPITAL ADVISORS, L.P. (SAC Capital LP), S.A.C. CAPITAL ADVISORS, LLC (SAC Capital LLC), CR INTRINSIC INVESTORS, LLC (CR Intrinsic), and SIGMA CAPITAL MANAGEMENT, LLC (Sigma Capital); (collectively the SAC Companies). The SAC Companies are responsible for the management of a group of affiliated hedge funds (collectively the SAC Hedge Fund or SAC). Charges were also unsealed today against RICHARD LEE, a portfolio manager employed by SAC Capital LP, who focused on “special situations” like mergers and acquisitions, private equity buy-outs, and corporate restructurings in publicly traded companies across various industry sectors. LEE pled guilty on July 23, 2013, before U.S. District Judge Paul G. Gardephe, to conspiracy and securities fraud charges in connection with his work at SAC Capital LP.

The SAC Companies are charged with criminal responsibility for insider trading offenses. These alleged offenses were committed by numerous employees, occurred over the span of more than a decade, and involved the securities of more than 20 publicly-traded companies across multiple sectors of the economy. It is charged that the acts of these employees were made possible by institutional practices that encouraged the widespread solicitation and use of material, non-public information (Inside Information). This activity allegedly resulted in hundreds of millions of dollars in illegal profits and avoided losses at the expense of members of the investing public. The SAC Companies are expected to be arraigned on the charges on tomorrow at 10:00 a.m. before U.S. District Judge Laura Taylor Swain.

Manhattan U.S. Attorney Preet Bharara said: “A company reaps what it sows, and as alleged, SAC seeded itself with corrupt traders, empowered to engage in criminal acts by a culture that looked the other way despite red flags all around. SAC deliberately encouraged the no-holds-barred pursuit of an ‘edge’ that literally carried it over the edge into corporate criminality. Companies, like individuals, need to be held to account and need to be deterred from becoming dens of corruption. To all those who run companies and value their enterprises, but pay attention only to the money their employees make and not how they make it, today’s indictment hopefully gets your attention.”

FBI Assistant Director in Charge George Venizelos said: “Our aim all along has been to root out the wrongdoers and send a message to anyone else inclined to break the law. If your information ‘edge’ is inside information, you can’t trade on it.”

According to the allegations in the five-count indictment and the criminal information to which LEE pled guilty, both of which were unsealed today in Manhattan federal court:

The SAC Hedge Fund operated as a collection of dozens of individual trading portfolios that covered nearly every trading sector of the economy. Each portfolio was headed up by a portfolio manager (PM), and supported by one or more research analysts (RAs). SAC PMs had substantial discretion in managing the investments in their own portfolios, and were required by the SAC Companies to share the investment recommendations in which they had the greatest confidence with the owner of the SAC Companies (the SAC Owner). The SAC Owner managed the largest trading portfolio at SAC.

From 1999 through at least 2010, numerous employees of the SAC Companies obtained and traded on Inside Information, or recommended trades based on such information to SAC PMs or the SAC Owner. To date, eight SAC Company PMs and RAs have been charged and/or convicted in insider trading cases involving the SAC Hedge Fund, including LEE, who was charged and pled guilty earlier this week.

The systematic insider trading engaged in by SAC PMs and RAs was the predictable and foreseeable result of an institutional failure. The SAC business culture encouraged and tolerated the relentless pursuit of an information “edge,” with no meaningful commitment to ensuring that such an “edge” came from legitimate research and not Inside Information.

As charged in the indictment, these institutional failings fell into three main categories:

First, the SAC Companies focused on recruiting SAC PMs and SAC RAs who had proven networks of public company contacts. The SAC Companies, however, did not make any corresponding effort to ensure that prospective SAC PMs and SAC RAs did not use these contacts to obtain illegal Inside Information. For example, in a November 16, 2008, e-mail forwarded to the SAC Owner, an SAC PM candidate in the industrial sector was recommended in part because he had “a house in the Hamptons with the CFO” of a Fortune 100 industrial sector company. In another instance, the SAC Companies hired LEE despite a warning to the SAC Owner from LEE’s prior employer, that LEE had been a member of an insider trading group at that hedge fund. LEE ultimately traded on Inside Information in the $1.25 billion “special situations” SAC portfolio he jointly managed with a second SAC PM.

Second, employees of the SAC Companies were financially rewarded for recommending to the SAC Owner “high conviction” trading ideas, in which the SAC PM had an “edge” over other investors. In many cases, the employees were not questioned when making trading recommendations that appeared to be based on Inside Information. On numerous occasions, the SAC Owner failed to follow up with SAC employees who were promoting trading sourced to an “edge” from a contact at a public company or with similar language suggesting potential insider trading. On one occasion, the SAC Owner participated in a discussion with his employees on the topic of confidential information the SAC employees had said that they learned during a paid consultation session from a clinical investigator for a drug trial. During the discussion with his employees, the SAC Owner, a sophisticated trader with over three decades of experience, never questioned whether the drug trial data constituted Inside Information. In addition, the SAC Owner and SAC Companies cultivated an environment that emphasized not discussing Inside Information openly rather than not seeking or trading on it in the first place.

Third, the SAC Companies employed limited compliance measures designed to detect or prevent insider trading by SAC PMs or SAC RAs. They failed to routinely monitor employee e-mails for indications of insider trading until late 2009, even though SAC’s head of compliance had recommended such monitoring to SAC management four years earlier. Indeed, despite numerous documented cases of insider trading at SAC—established by, among other things, guilty pleas of six former SAC PMs and RAs, each predicated upon repeated insider trading over substantial periods of time—SAC’s compliance department contemporaneously identified only a single instance of suspected insider trading by its employees. In that one case, the SAC Companies permitted those involved to continue working at SAC and failed to report the conduct to regulators or law enforcement.

***

In addition to the indictment, today the government filed a civil forfeiture action (the forfeiture complaint) in Manhattan federal court, seeking the forfeiture of assets held by investment funds to which the SAC Companies served as investment advisors, assets held by affiliated investment funds, and assets held by the SAC Companies themselves. The Forfeiture Complaint alleges that the SAC Companies engaged in money laundering by commingling the illegal profits from insider trading with other assets, using the profits to promote additional insider trading, and transferring the profits with the assistance of financial institutions.

The SAC Companies are charged together in count one of the indictment with wire fraud, and each of the four SAC Companies is charged separately in counts two through five with securities fraud. Each of the SAC Companies faces a maximum fine for the securities fraud charges of the greater of $25 million, or twice the gross gain or loss derived from the offense on each charge.

The criminal information unsealed today, to which RICHARD LEE pled guilty earlier this week, charges LEE with one count of conspiracy and one count of securities fraud in connection with insider trading between April 2009 through 2010, while he was employed by SAC Capital LP. LEE faces a maximum penalty of 20 years in prison for the securities fraud charge and five years in prison for the conspiracy charge. He also faces a maximum fine of $5 million for the securities fraud charge and $250,000 or twice the gross gain or loss derived from the offense on the conspiracy charge.

Of the seven other SAC Company portfolio managers and research analysts previously charged in insider trading cases involving the SAC Hedge Fund, five have pled guilty and await sentencing. They include:

  • Jon Horvath, who pled guilty on September 28, 2012;
  • Wes Wang, who pled guilty on July 13, 2012;
  • Donald Longueuil, who pled guilty on April 28, 2011;
  • Noah Freeman, who pled guilty on February 7, 2011; and
  • Richard Choo-Beng Lee, who pled guilty on October 13, 2009

Charges are still pending against the remaining two defendants previously charged in connection with SAC, Michael Steinberg and Mathew Martoma, who are presumed innocent unless and until proven guilty.

Mr. Bharara praised the efforts of the FBI and also thanked the U.S. Securities and Exchange Commission for its assistance in the investigation. He added that the investigation is continuing.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit http://www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Arlo Devlin-Brown, Antonia M. Apps and John T. Zach are in charge of the prosecution, and Assistant U.S. Attorney Micah Smith is responsible for the forfeiture aspects of the case.

The charges contained in the indictment are merely accusations and the defendants are presumed innocent unless and until proven guilty.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Federal “Criminal Indictment Is Expected for SAC Capital Advisors”

July 24, 2013

The New York Times on July 23, 2013 released the following:

“BY BEN PROTESS AND PETER LATTMAN

Federal authorities are poised to level a criminal indictment against SAC Capital Advisors, the hedge fund run by the billionaire Steven A. Cohen, capping a nearly decade-long insider trading investigation into one of Wall Street’s most prominent firms.

Prosecutors and the F.B.I. in Manhattan are expected to announce the charges in the coming days, according to people briefed on the matter, who spoke only on the condition of anonymity. The move, a rare aggressive action against a big company, could cripple SAC.

It is unclear whether SAC’s lawyers will try to settle at the last minute, though that is an unlikely option at this point. Mr. Cohen is not expected to be charged criminally, though authorities are still contemplating bringing charges against other employees at SAC.

While the legal deadline for filing some insider trading charges may have already passed, authorities are planning to navigate around that requirement by filing a broader criminal conspiracy case against SAC, these people said. As long as one of the trades cited in the case took place in the last five years – and some did – then the government has the power to sweep in older trades to highlight a continuing scheme.

Representatives for the government and SAC declined to comment.

The indictment would come on the heels of the Securities and Exchange Commission’s filing a civil action last week. It accused Mr. Cohen of failing to supervise employees suspected of insider trading. Those employees, Mathew Martoma and Michael S. Steinberg, had been charged with criminal wrongdoing.

In its order, the S.E.C. cited a 2008 e-mail forwarded to Mr. Cohen in which an SAC analyst explicitly stated that he had a “2nd hand read from someone at” the computer maker Dell, a source who provided financial information about the company before its earnings announcement. Minutes after receiving the e-mail, Mr. Cohen sold his entire position in Dell, the S.E.C. said.

In a 46-page document responding to the S.E.C.’s charges, Mr. Cohen’s lawyers said there was an innocent explanation for his not reacting to the suspicious e-mail: he did not read it.

“Cohen has no memory of having seen it and no witness will testify that they discussed it with him,” the lawyers said in the document, circulated internally at SAC and reviewed by The New York Times and referred to earlier in The Wall Street Journal.

Mr. Cohen, the lawyers argued, received an average of 1,000 e-mails each day in 2008. At the time, he apparently opened only 11 percent of the e-mails, though the lawyers did not disclose how they arrived at that figure.

To locate an incoming message, Mr. Cohen would have to look at the only one of his seven computer screens that displays e-mail, a monitor that happened to be “to the far left” of the others, his lawyers argued. Then he would have to “minimize one or two computer programs” to call up his Microsoft Outlook window, which was “reduced” so that Mr. Cohen could see, at most, only five messages at once.

While the document makes a strong case that Mr. Cohen was not knowingly trading on inside information, it is unclear whether it will rebut the S.E.C.’s claims that he did not prevent employees from doing so. The S.E.C. must show that Mr. Cohen did not “reasonably” supervise them.

Mr. Martoma, 39, and Mr. Steinberg, 40, have each pleaded not guilty to criminal insider trading charges and face separate trials in November.

Mr. Cohen’s civil case will play out before an administrative law judge at the S.E.C. rather than in a federal court. On Tuesday, Chief Judge Brenda P. Murray was assigned to the case, and a hearing was scheduled for Aug. 26.

The SAC document, people briefed on the matter said, was adapted from the lawyers’ response to the S.E.C.’s so-called Wells notice that warned of potential charges. It also outlined the arguments that SAC most likely presented in an effort to persuade the Justice Department not to bring a criminal indictment of the fund.

A criminal charge against SAC would likely serve as a death blow to the firm. SAC has already been hobbled by the government’s investigation, with investors in the fund pulling about $5 billion from the fund since the beginning of the year. But an indictment may pressure more investors to pull their money. It could also force SAC’s trading partners, which include nearly all of the largest Wall Street banks, like Goldman Sachs and Morgan Stanley, to suspend business with the firm.

Criminal charges against companies are extremely rare, and the government is reluctant to bring them given the potential collateral consequences. After the Justice Department indicted Enron’s accounting firm, Arthur Andersen, the firm was forced to close and 28,000 jobs were lost. SAC, which is based in Stamford, Conn., has about 1,000 employees.

Before bringing indictments against companies, federal prosecutors consider a number of factors when deciding to bring a case, including the pervasiveness of wrongdoing and the company’s level of cooperation in the investigation.

The Dell e-mails are expected to play a central role in the criminal case.

Even if he was a vigilant e-mail consumer, the lawyers say, Mr. Cohen could argue that the 2008 dispatch did not identify the source of the information about Dell, suggesting that it could have “lawfully” come from an authorized person at the company. The source, the lawyers note, did in fact turn out to be someone from the investor relations department, who has not been accused of any wrongdoing. The lawyers also note that the information in the e-mail “turned out to be wrong.”

Still, SAC made profits and avoided losses of $1.7 million. And once Dell released its earnings, Mr. Cohen sent an e-mail to Mr. Steinberg that said, “Nice job on Dell.”

Mr. Cohen sold his stake in Dell, the lawyers argue, with “good reason.” Mr. Cohen, they said, took the position based on the recommendation of a portfolio manager at SAC, whom people briefed on the matter identified as Gabe Plotkin. Minutes after Mr. Plotkin started selling, so did Mr. Cohen.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

————————————————————–

To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


“Enron’s Jeff Skilling Could Get Early Release From Prison”

April 4, 2013

CNBC on April 4, 2013 released the following:

“By: Scott Cohn
CNBC Senior Correspondent

Former Enron CEO Jeffrey Skilling, who is serving a 24-year prison term for his role in the energy giant’s epic collapse, could get out of prison early under an agreement being discussed by his attorneys and the Justice Department, CNBC has learned.

Skilling, who was convicted in 2006 of conspiracy, fraud and insider trading, has served just over six years. It is not clear how much his sentence would be shortened under the deal.

A federal appeals panel ruled in 2009 that the original sentence imposed by U.S. District Judge Sim Lake was too harsh, but a re-sentencing for the 59-year-old Skilling has repeatedly been delayed, first as the appeals process played out, and then as the negotiations for a deal progressed.

Those talks had been a closely guarded secret, but Thursday the Justice Department quietly issued a notice to victims required under federal law:

“The Department of Justice is considering entering into a sentencing agreement with the defendant in this matter,” the notice reads. “Such a sentencing agreement could restrict the parties and the Court from recommending, arguing for, or imposing certain sentences or conditions of confinement. It could also restrict the parties from challenging certain issues on appeal, including the sentence ultimately imposed by the Court at a future sentencing hearing.”

(Read More: Flush With Crime: Study Shows Prison a Career Booster)

A Justice Department spokesman declined to comment. Skilling’s longtime defense attorney, Daniel Petrocelli, could not immediately be reached for comment.

Lake, who imposed the original sentence, would have the final say in the sentence. The posting of the notice, however, suggests the parties have some indication he will go along. Lake held a private conference call with attorneys for both sides last month.

For Skilling, who has consistently maintained his innocence, an agreement would end a long ordeal, although his conviction on 19 criminal counts would likely stand. The government, meanwhile, would avoid a potentially messy court battle over alleged misconduct by the Justice Department’s elite Enron Task Force appointed in the wake of the company’s sudden failure in 2001.

Skilling’s attorneys had planned to move for a new trial based on that alleged misconduct. Under a sentencing agreement, that motion would likely be dropped.

Skilling, who developed Enron’s business model as an “asset-light” energy trading company, rose to CEO in early 2001, only to resign six months later. Soon after that, Enron began its sudden plunge into what was at the time the largest bankruptcy in U.S. history.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Appeal

————————————————————–

To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Australian Citizen and Former Research Analyst Charged with Alleged Insider Trading

December 27, 2012

The Federal Bureau of Investigation (FBI) on December 26, 2012 released the following:

Australian Charged in Addition to Two Stockbrokers Already Arrested for Trading on Inside Information Relating to IBM’s Acquisition of SPSS in 2009

NEW YORK— Trent Martin, a citizen of Australia and a former research analyst at an international financial services firm, was charged today for his alleged involvement in an insider trading scheme with Thomas C. Conradt and David J. Weishaus, two stockbrokers who were arrested for the same offenses on November 29, 2012, announced U.S. Attorney for the Southern District of New York Preet Bharara and Assistant Director in Charge of the New York Field Office of the FBI George Venizelos. Martin, Conradt, Weishaus, and their co-conspirators allegedly traded on the basis of material, non-public information concerning IBM’s acquisition of a software company, SPSS Inc., in 2009, earning in the aggregate more than $1 million in profits. The case against Martin, Conradt, and Weishaus is assigned to U.S. District Judge Andrew L. Carter, Jr.

Martin was arrested on December 22, 2012 in Hong Kong following a request from the United States. Following their earlier arrests in the United States, Conradt and Weishaus pleaded not guilty on December 7, 2012 and are scheduled to appear next before Judge Carter on January 18, 2013 at 10:00 a.m.

The following allegations are based on the superseding indictment unsealed today in Manhattan federal court:

The inside information concerning IBM’s acquisition of SPSS allegedly originated from a corporate lawyer (Attorney-1) who was part of the legal team that represented IBM in the transaction in 2009. On May 31, 2009, Attorney-1 shared inside information concerning the transaction—including the names of the parties and the fact that IBM was going to acquire SPSS for a significant premium over SPSS’s market price—with his close friend, Trent Martin. The information was shared in confidence. Based on their longstanding history of sharing confidences, among other things, Attorney-1 expected that Martin would not share the information or use it to trade.

In June 2009, however, Martin bought SPSS common stock based on the inside information he was given by Attorney-1 and, in turn, shared the tip with his roommate, Conradt, who worked as a stockbroker at a securities trading firm (Securities Trading Firm-1). Conradt then bought SPSS common stock and tipped Weishaus, his co-worker at Securities Trading Firm-1. On June 24, 2009, Weishaus started buying call option contracts in SPSS. In addition, Conradt and Weishaus tipped their co-workers at Securities Trading Firm-1 (CC-1 and CC-2), who also bought SPSS call option contracts in June and July 2009 based on the inside information.

In instant messages exchanged in July 2009, Conradt and Weishaus discussed their insider trading scheme and the fact that their information came from Martin. For example, on July 1, 2009, Weishaus wrote to Conradt, “somebody is buying spss . . . we should get [CC-1] to buy a f***load [of SPSS shares] . . . .” Conradt responded, “jesus don’t tell anyone else . . . we gotta keep this in the family.” Weishaus answered, “dude, no way. i dont want to go to jail f*** that . . . martha stewart spent 5 months in the slammer . . . and they tried to f*** the mavericks owner.” Later that same day, Weishaus wrote to Conradt, “jesus, we need spss to run up i need that lexus.”

On July 10, 2009, Weishaus wrote to Conradt, “we need some turn around on spss.” Conradt responded, referring to Trent Martin by name: “[Y]eah i called trent, gonna get more details tonight he was at work, couldn’t talk[.]”

In another instant message exchange, on July 23, 2009, Conradt asked Weishaus to buy SPSS call options for Conradt, but Weishaus declined. In response, Conradt wrote, “wtf, i’m setting this deal up for everyone . . . makin everyone rich.” Weishaus responded, “[Another individual] is gonna put in 50k sept options.” Conradt then wrote, again referring to Trent Martin by name, “holy f*** . . . god trent told me not to tell anyone . . . big mistake.” Weishaus responded, “eh, we’ll get rich.”

That same day, Martin told Attorney-1 that he had purchased SPSS common stock and call options on the basis of the inside information that Attorney-1 had disclosed to Martin at their brunch on or about May 31, 2009.

When IBM announced its acquisition of SPSS on July 28, 2009, the share price of SPSS common stock rose by 41 percent in one day, from the prior day’s closing price of $35.09 per share to a closing price of $49.45 per share. Thereafter, Martin, Conradt, Weishaus, CC-1 and CC-2 sold their SPSS positions, yielding profits of $7,900, $2,538, $129,290, $629,954 and $254,360, respectively, for a total profit in excess of $1 million.

In the fall of 2010, after the SEC had begun investigating insider trading in SPSS, Martin told Attorney-1 that he had profited approximately $8,000 from the inside information concerning IBM’s acquisition of SPSS and had disclosed it to his roommate, Conradt, before the transaction was publicly announced. Martin also told Attorney-1 that Martin believed Conradt had taken a large position in SPSS before the announcement and had, in turn, shared the inside information with others. Martin further stated to Attorney-1 that he was returning to Australia in light of the U.S. Securities and Exchange Commission investigation, and that he knew that insider trading can result in jail sentences, referring to the criminal prosecution of Martha Stewart.

* * *

Martin, 33, has been charged with one count of conspiracy to commit securities fraud and one count of securities fraud. Count one, the conspiracy charge, carries a maximum potential penalty of five years in prison and a fine of $250,000 or twice the gross gain or loss from the offense. Count two, the securities fraud charge, carries a maximum potential penalty of 20 years in prison and a maximum fine of $5 million.

U.S. Attorney Bharara praised the investigative work of the FBI and thanked authorities in Hong Kong who are providing assistance with this case. He also thanked the SEC and the U.S. Department of Justice’s Office of International Affairs. Mr. Bharara noted that the investigation is continuing.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys John T. Zach and David B. Massey are in charge of the prosecution.

The charges contained in the indictments are merely accusations, and the defendants are presumed innocent unless and until proven guilty.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Rajat Gupta Gets Two-Year Sentence for Insider Trading

October 25, 2012

Bloomberg on October 24, 2012 released the following:

“By Patricia Hurtado, David Glovin and Bob Van Voris

Former Goldman Sachs Group Inc. (GS) director Rajat Gupta was sentenced to two years in prison for insider trading, marking the downfall of a man who rose to the top of corporate America after being orphaned as an 18-year-old in Kolkata.

Gupta, who ran McKinsey & Co. from 1994 to 2003, was sentenced today by U.S. District Judge Jed Rakoff in Manhattan for leaking stock tips to Galleon Group LLC co-founder Raj Rajaratnam. Gupta, 63, was convicted in June of securities fraud and conspiracy. He is set to report to prison on Jan. 8. He was also fined $5 million.

The evidence that Gupta passed illegal information about Goldman Sachs to Rajaratnam was “not only overwhelming, it was disgusting in its implications,” Rakoff said in court today before handing down the sentence.

Prosecutors had sought a prison term for Gupta of as long as 10 years. Gupta requested probation and community service, and his lawyer had proposed that he work with needy children in New York or the poor in Rwanda.

In his 17 years as a judge, Rakoff has sentenced at least nine defendants other than Gupta for insider trading, including seven who pleaded guilty and two whom he jailed after they were found guilty by juries. Rakoff has a track record of imposing sentences that are half what the government recommends.

Insider Probes

From Jan. 1, 2011 to July of this year, federal judges in Manhattan sent the average insider-trading violator to prison for more than 22 months, according to an analysis of sentencing data by Bloomberg News. That was a 20 percent increase from the average term of 18.4 months during the previous eight years.

Over the same 18-month period, the average sentence after trial was 58 months, compared with 22 months during the same time for 18 defendants who pleaded guilty. Of the dozen defendants who pleaded guilty and agreed to cooperate with the U.S. insider-trading probe during that time, 11 avoided prison altogether. One got six months.

“With today’s sentence, Rajat Gupta now must face the grave consequences of his crime — a term of imprisonment,” Manhattan U.S. Attorney Preet Bharara said in a statement. “His conduct has forever tarnished a once-sterling reputation that took years to cultivate.”

‘Innovative’ Proposal’

During today’s hearing, Rakoff said the Rwanda community service proposal was “very innovative.”

“I thought, ah, this was the Peace Corps for insider traders,” the judge said to Gupta’s lawyer, Gary Naftalis. “But I think if everything you told me about Mr. Gupta’s character is correct, and I think it is, he would be doing this regardless of a court order or not. So looking at it in a cynical kind of way, it is not punishment.”

Before he was sentenced, Gupta told the judge that “I lost my reputation that I built over a lifetime. The last 18 months have been the most challenging period of my life since my parents died when I was a teenager.”

Gupta served on the boards of Procter & Gamble Co. (PG) and AMR Corp. (AAMRQ) and won praise for his charity from Microsoft Corp. (MSFT) Chairman Bill Gates and former United Nations Secretary-General Kofi Annan. As McKinsey’s youngest managing director, he almost tripled the firm’s revenue.

Helped ‘Many’

Gupta’s life “has been an extraordinary one,” Naftalis said today in court. He said his client has made “extraordinary contributions that have tangibly helped many, many people on this planet.” His crimes are a “total aberration in an otherwise laudatory life.”

Gupta was convicted by a jury of leaking tips to Rajaratnam, his friend and business partner, about New York- based Goldman Sachs. Gupta leaked information including a $5 billion investment by Warren Buffett’s Berkshire Hathaway Inc. (BRK/B) on Sept. 23, 2008, and a tip on a quarterly loss.

The jury acquitted Gupta of charges that he leaked information that Cincinnati-based P&G’s organic sales growth would fall below estimates and that he tipped Rajaratnam, 55, about Goldman Sachs’s earnings in the first quarter of 2007.

Unlike the Rajaratnam prosecution, which was based on dozens of wiretaps of his mobile-phone conversations, the case against Gupta was circumstantial and built on trading records, business relationships and comments by Rajaratnam or others about Galleon’s sources of information. The jury heard one wiretapped conversation between Gupta and Rajaratnam. Naftalis told the judge today that he would challenge Rakoff’s decision to admit the recording and other evidentiary rulings he made during the trial on appeal.

The case is U.S. v. Gupta, 11-cr-907, U.S. District Court, Southern District of New York (Manhattan).”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Appeal

————————————————————–

To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Appeal in Insider Trading Case Centers on Wiretap

October 24, 2012

The New York Times on October 23, 2012 released the following:

“BY PETER LATTMAN

In March 2008, the Justice Department made an extraordinary request: It asked a judge for permission to record secretly the phone conversations of Raj Rajaratnam, a billionaire hedge fund manager.

The request, which was granted, was the first time the government had asked for a wiretap to investigate insider trading. Federal agents eavesdropped on Mr. Rajaratnam for nine months, leading to his indictment — along with charges against 22 others — and the biggest insider trading case in a generation.

On Thursday, lawyers for Mr. Rajaratnam, who is serving an 11-year prison term after being found guilty at trial, will ask a federal appeals court to reverse his conviction. They contend that the government improperly obtained a wiretap in violation of Mr. Rajaratnam’s constitutional privacy rights and federal laws governing electronic surveillance.

Such a ruling is considered a long shot, but a reversal would have broad implications. Not only would it upend Mr. Rajaratnam’s conviction but also affect the prosecution of Rajat K. Gupta, the former Goldman Sachs director who was convicted of leaking boardroom secrets to Mr. Rajaratnam. Mr. Gupta is scheduled to be sentenced on Wednesday.

A decision curbing the use of wiretaps would also affect the government’s ability to police Wall Street trading floors, as insider trading cases and other securities fraud crimes are notoriously difficult to build without direct evidence like incriminating telephone conversations.

“Wiretaps traditionally have been used in narcotics and organized crime cases,” said Harlan J. Protass, a criminal defense lawyer in New York who is not involved in the Rajaratnam case. “Their use today in insider trading investigations indicates that the government thinks there may be no bounds to the types of white-collar cases in which they can be used.”

More broadly, Mr. Rajaratnam’s appeal is being closely watched for its effect on the privacy protections of defendants regarding wiretap use. Three parties have filed “friend-of-the-court” briefs siding with Mr. Rajaratnam. Eight former federal judges warned that allowing the court’s ruling to stand “would pose a grave threat to the integrity of the warrant process.” A group of defense lawyers said that upholding the use of wiretaps in this case would “eviscerate the integrity of the criminal justice system.”

To safeguard privacy protections, federal law permits the government’s use of wiretaps only under narrowly prescribed conditions. Among the conditions are that a judge, before authorizing a wiretap, must find that conventional investigative techniques have been tried and failed. Mr. Rajaratnam’s lawyers said the government misled the judge who authorized the wiretap, Gerard E. Lynch, in this regard.

They say that the government omitted that the Securities and Exchange Commission had already been building its case against Mr. Rajaratnam for more than a year using typical investigative means like interviewing witnesses and reviewing trading records. Had the judge known about the S.E.C.’s investigation, he would not have allowed the government to use a wiretap, Mr. Rajaratnam’s lawyers argue.

Before Mr. Rajaratnam’s trial, the presiding judge, Richard J. Holwell, held a four-day hearing on the legality of the wiretaps. Judge Holwell criticized the government, calling its decision to leave out information about its more conventional investigation a “glaring omission” that demonstrated “a reckless disregard for the truth.”

Nevertheless, Judge Holwell refused to suppress the wiretaps, in part, he said, because they were necessary to uncover Mr. Rajartanam’s insider trading scheme. “It appears that the S.E.C., and by inference the criminal authorities, had hit a wall of sorts,” Judge Holwell wrote.

On appeal, Mr. Rajaratnam lawyers argued that the government’s lack of candor should not be tolerated. They described the government’s wiretap application as full of “misleading assertions” and “outright falsity” that made it impossible for Judge Lynch to do his job.

“The government’s self-chosen reckless disregard of the truth and of the critical role of independent judicial review breached that trust and desolated the warrant’s basis,” wrote Mr. Rajaratnam’s lawyers at the law firm Akin Gump Strauss Hauer & Feld.

In their brief to the appeals court, federal prosecutors dispute that they acted with a “reckless disregard for the truth.” Instead, they argue that omitting details of the S.E.C.’s investigation was at most “an innocent mistake rising to the level of negligence.” In addition, they said that the S.E.C.’s inquiry failed to yield sufficient evidence for a criminal case, necessitating the use of a wiretap.

Once Judge Lynch signed off on the wiretap application, the government’s investigation into Mr. Rajaratnam accelerated. The wiretapping of Mr. Rajaratnam’s phone, along with the subsequent recording of his supposed accomplices, yielded about 2,400 conversations. In many of them, Mr. Rajaratnam could be heard exchanging confidential information about technology stocks like Google and Advanced Micro Devices.

Three years ago this month, federal authorities arrested Mr. Rajaratnam and charged him with orchestrating a seven-year insider trading conspiracy. The sprawling case has produced 23 arrests of traders and tipsters, many of them caught swapping secrets with Mr. Rajaratnam about publicly traded companies.

Among the thousands of calls were four that implicated Mr. Gupta, a former head of the consulting firm McKinsey & Company who served as a director at Goldman Sachs and Procter & Gamble. On one call in July 2008, the only wiretapped conversation between the two men, Mr. Gupta freely shared Goldman’s confidential board discussions with Mr. Rajaratnam. On another, Mr. Rajaratnam told a colleague at his hedge fund, the Galleon Group, “I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share.”

Those conversations set off an investigation of Mr. Gupta. He was arrested in October 2011 and charged with leaking boardroom secrets about Goldman and P.& G. to Mr. Rajaratnam. A jury convicted him in May after a monthlong trial.

On Wednesday at Federal District Court in Manhattan, Judge Jed S. Rakoff will sentence Mr. Gupta. Federal prosecutors are seeking a prison term of up to 10 years. Mr. Gupta’s lawyers have asked Judge Rakoff for a nonprison sentence of probation and community service. One proposal by the defense would have Mr. Gupta living in Rwanda and working on global health issues.

Regardless of his sentence, Mr. Gupta plans to appeal. And because prosecutors used wiretap evidence in his trial, Mr. Gupta would benefit from a reversal of Mr. Rajaratnam’s conviction.

Yet a reversal would not affect the convictions of the defendants in the conspiracy who have pleaded guilty. As part of their pleas, those defendants waived their rights to an appeal.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Appeal

————————————————————–

To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Gupta to Urge Probation From Judge Who Once Defended Insiders

October 22, 2012

San Francisco Chronicle on October 22, 2012 released the following:

“Patricia Hurtado and David Glovin, ©2012 Bloomberg News

Oct. 22 (Bloomberg) — As a lawyer, Jed Rakoff once persuaded a judge to give probation to a client convicted at an insider-trading trial alongside former Wall Street Journal reporter R. Foster Winans. Now a federal judge himself, Rakoff must weigh Rajat Gupta’s similar request to stay out of prison.

Gupta, a former Goldman Sachs Group Inc. director, will come before Rakoff in Manhattan federal court on Oct. 24 to be sentenced for leaking stock tips to Galleon Group LLC co-founder Raj Rajaratnam. Prosecutors say Gupta, convicted by a jury in June, deserves as long as 10 years in prison. Gupta seeks probation.

Gary Naftalis, a lawyer for Gupta, argued his client’s crime was an “aberrational” event in a “lifetime of good works” that merited a punishment for a man who has suffered an extraordinary fall from grace. He asked Rakoff to impose a term of community service, suggesting Gupta work with troubled youth in New York or with the poor in Rwanda.

“Good works help, but on their own they are rarely a ‘Get out of jail free card,’” said Gordon Mehler, a former federal prosecutor who’s now in private practice in New York. “So, it seems as if probation, even in Rwanda, is unlikely.”

Gupta, 63, is the most prominent of 70 people convicted since a nationwide insider-trading crackdown by U.S. prosecutors began four years ago. Gupta also served as managing partner of McKinsey & Co. from 1994 to 2003 and on the board of Procter & Gamble Co. from 2007 to March 2011, when he also resigned from the boards of Goldman Sachs, AMR Corp. and two other companies.

Buffett’s Berkshire

After a four-week trial in June, jurors found Gupta guilty of tipping Rajaratnam about dealings at New York-based Goldman Sachs, including a $5 billion investment by Warren Buffett’s Berkshire Hathaway Inc. Rajaratnam, 55, is serving 11 years in prison for trading on tips from Gupta and others.

In his 17 years as a judge, Rakoff has sentenced at least nine defendants for insider trading, including seven who pleaded guilty and two whom he jailed after they were found guilty by juries. Rakoff has a track record of imposing a sentence that is half what the government recommends.

“If there is any judge who’s sensitive to the draconian impact of the sentencing guidelines with respect to white-collar offenders, it’s Judge Rakoff,” said J. Bruce Maffeo, a former federal prosecutor now in private practice. “That being said, he’s equally sensitive to the need to fashion a sentence that takes into account both the defendant’s personal background and the need to deter others in the financial world, where this kind of activity appears to be more prevalent than previously assumed.”

Winning Leniency

Rakoff, a former federal prosecutor in New York who headed the office’s securities-fraud unit, was a white-collar criminal- defense lawyer before taking the bench.

As a defense lawyer, Rakoff won leniency for a client convicted of insider trading who was also facing prison.

Rakofff’s client, David Carpenter, went on trial in 1985 with his lover, journalist R. Foster Winans, and broker Kenneth Felis. Prosecutors said Winans leaked tips to Felis about forthcoming market-moving articles in his “Heard on the Street” column, Felis traded on the news and Carpenter allowed Winans to place trades through his account. All were convicted. Carpenter died in 1991.

Wife, Husband

At the sentencing, Rakoff compared Carpenter’s relationship with Winans to that of wife-and-husband and said Carpenter merely acquiesced to Winans’ trades, according to Winans’s lawyer, Don Buchwald. Carpenter got probation while Winans was given an 18-month prison term.

“He was following Foster,” Buchwald said in a phone interview last week. “Carpenter was a very sympathetic figure.”

This week, Gupta will be seeking sympathy of a different sort from Rakoff. Gupta’s lawyer, Naftalis, said in a court filing that Gupta deserves probation because his crime was an aberration in a life “defined by helping others.”

Naftalis cited Gupta’s work as chairman of the Global Fund, an initiative to fight AIDS, tuberculosis and malaria, as well as his work with the United Nations to improve world health. Naftalis declined to comment on a comparison of the Gupta and Carpenter cases. The defense submitted more than 400 letters to the judge describing Gupta’s accomplishments.

In their pre-sentencing court filings, prosecutors gave a different portrait of Gupta and asked Rakoff to consider the personal relationship between Gupta and Rajaratnam.

‘Very Close Friend’

In asking for a term of 97 months to 121 months, which they say are called for by U.S. sentencing guidelines, prosecutors say Gupta violated confidences and breached his duty as a senior corporate official by leaking news to his “very close friend” and business partner.

“Gupta’s interests often were aligned with those of Rajaratnam and Galleon such that Gupta stood to benefit if Galleon was successful,” prosecutors wrote in a filing, citing Gupta’s investment in Galleon and their partnership in another investment fund.

Richard Holwell, the former federal judge who presided over Rajaratnam’s trial and sentenced the fund manager, said judges consider “general deterrence,” or whether the sentence they impose will deter others from committing similar crimes.

“The nature and circumstances of the crime weigh in the government’s favor, because insider trading is a serious white- collar crime that undermines the integrity of the markets” said Holwell, who is now in private practice.

Deterrence

“The government will lean on general deterrence because insider trading has to be eradicated and one way to do that is by taking highly visible cases and making examples of them,” Holwell said. “That will weigh heavily on Rakoff.”

Other criminal defense lawyers said Gupta’s fall from grace may work in his favor. Kevin O’Brien, a former federal prosecutor in New York, said the judge must weigh Gupta’s achievements against his crimes.

“There is human drama there,” O’Brien said. “You can make the argument that for a guy like this who was on top of the world to have fallen so low and to have been so humiliated and exposed by a lengthy public trial, that is punishment enough.”

“What is smart about the Rwanda option is that it makes vivid Gupta’s commitment to public service and brings out with some clarity his history of good deeds,” he said. “It’s a creative approach.”

‘Mirage’ Guidelines

Federal sentencing guidelines are advisory. Rakoff’s history has been one of imposing sentences well below the recommended federal guidelines, which he has called a “mirage of something that can be obtained with arithmetic certainty.”

Last year, he sentenced James Fleishman, a former executive at expert-networking firm Primary Global Research LLC, to 2 1/2 years in prison for passing tips to fund managers while the guidelines called for more than seven years. He also ordered Primary Global consultant Winifred Jiau to serve 48 months for selling information. Her guidelines suggested a term of 78 months to 97 months in prison.

Still, Rakoff has rarely been silent about the contempt he has for insider traders, often expressing his sentiments in open court. In Fleishman’s case, he said insider prosecutions over “the last 30 or 40 years” have not “done enough to deter this serious and sophisticated crime.”

With Jiau, whose scheme ran for two years, he said the leaks undermined “the integrity of the financial markets” and demanded a “meaningful sentence.”

Maffeo said he believes Rakoff will impose some term of incarceration upon Gupta.

Love Families

Rakoff has demanded prison in cases in which, unlike Gupta, the defendants have admitted trafficking in illicit information. He sentenced ex-SAC Capital Advisors LP manager Donald Longueuil to 30 months instead of the 46 months to 57 months urged by the guidelines. He ordered a former Taiwan Semiconductor Manufacturing Co. manager to spend 18 months behind bars.

“Why is it that defendants always remember how much they love their families after they’ve committed the crimes that place that relationship in jeopardy?” Rakoff said at the sentencing of former Galleon trader Adam Smith, who won probation largely because he cooperated with prosecutors and testified against Rajaratnam.

Rakoff imposed an 18-month prison term on Manosha Karunatilaka, a former Taiwan Semiconductor Manufacturing Co. manager who pleaded guilty to passing nonpublic information about his company’s orders to fund managers as part of an insider-trading scheme. Karunatilaka cooperated with the U.S. and accepted responsibility for his crimes.

Crying Infant

As Karunatilaka’s infant child cried in the courtroom, Rakoff rejected a bid by defense lawyer Brad Bailey to impose a term of six months’ in prison and six months of home confinement.

Gupta, after two days of deliberations by a jury, was found guilty of three counts of securities fraud and one count of conspiracy. The tips came in September and October 2008 and concerned Buffett’s $5 billion investment in Goldman Sachs and the bank’s losses in the fourth quarter of 2008.

Jurors acquitted Gupta of charges that he leaked information that Cincinnati-based P&G’s organic sales growth would fall below estimates and that he tipped Rajaratnam about Goldman Sachs’s earnings in the first quarter of 2007.

In his filing, Naftalis argued that Gupta deserves leniency because his crimes were limited to a two-month period in 2008.

Peter Henning, a professor at Wayne State University Law School in Detroit, said Rakoff will focus on the nature of the crime and Gupta’s background. Henning predicted that the former Goldman Sachs director will get a prison term of two years to three years.

“That’s not a deleterious prison term, but it is prison and it doesn’t mean he will get a free pass,” Henning said in a phone interview. “It has to be a term to get everyone’s attention, and by everyone, I mean Wall Street.”

The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

————————————————————–

To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Ex-Home Diagnostics CEO admits to insider trading

August 9, 2012

Boston.com on August 9, 2012 released the following:

“TRENTON, N.J. (AP) — Federal prosecutors in New Jersey say a Connecticut man has admitted his role in an insider trading scheme related to the sale of a Florida-based medical products firm.

George Holley of Norwalk, Conn., interrupted his trial to plead guilty Wednesday to two counts of securities fraud. That came one day after prosecutors had rested their case against him.

Holley faces up to 40 years in prison when he’s sentenced Dec. 4.

Holley was chairman and CEO of Fort Lauderdale, Fla.-based Home Diagnostics Inc. Prosecutors said Holley disclosed inside information about a Japanese firm’s plan to acquire Home Diagnostics to his cousin and friend and told them to buy Home Diagnostics stock just three weeks before the merger was publically announced.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

————————————————————–

To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Former Corporate Chairman of Consulting Firm and Board of Director Rajat Gupta Found Guilty of Insider Trading in Manhattan Federal Court

June 15, 2012

The Federal Bureau of Investigation (FBI) on June 15, 2012 released the following:

“Gupta Convicted on Four Counts Arising from an Insider Trading Scheme in which He Provided Confidential Information About Goldman Sachs to His Business Partner and Friend, Raj Rajaratnam

Preet Bharara, the United States Attorney for the Southern District announced that Rajat K. Gupta, former corporate chairman of an international consulting firm and a member of the Boards of Directors of The Goldman Sachs Group Inc. (“Goldman Sachs”) and the Procter & Gamble Company (“P&G”), was found guilty today by a jury in Manhattan federal court of conspiracy and securities fraud crimes stemming from his involvement in an insider trading scheme with his business partner and friend, Raj Rajaratnam, the founder and former head of the Galleon Group.

Manhattan U.S. Attorney Preet Bharara stated, “Rajat Gupta once stood at the apex of the international business community. Today, he stands convicted of securities fraud. He achieved remarkable success and stature, but he threw it all away. Having fallen from respected insider to convicted inside trader, Mr. Gupta has now exchanged the lofty board room for the prospect of a lowly jail cell. Violating clear and sacrosanct duties of confidentiality, Mr. Gupta illegally provided a virtual open line into the board room for his benefactor and business partner, Raj Rajaratnam.

“Almost two years ago, we said that insider trading is rampant, and today’s conviction puts that claim into stark relief. It bears repeating that, in coordination with our extraordinary partners at the FBI, we will continue to pursue those who violate the securities laws, regardless of status, wealth, or influence. I thank the members of the jury for their time, attention, and service, and the dedicated career prosecutors from my office who so ably tried this case.”

According to the superseding indictment filed in Manhattan federal court, other court documents, statements made at trial, and court proceedings:

During all relevant times, Gupta and Rajaratnam maintained a close personal and business relationship. Among other things, Gupta described Rajaratnam as a close friend; Gupta invested his money in Galleon funds while he served as chairman of the international consulting firm; Gupta co-owned a fund of funds with Rajaratnam, which invested its money in Galleon funds; Gupta served as chairman of a $1.5 billion private equity firm called NSR in which Rajaratnam invested approximately $50 million and served on the investment committee; and Gupta was given the position of Chairman of Galleon International in 2008 and expected to receive 15 percent of that fund’s performance fees.

From 2007 through January 2009, Gupta repeatedly disclosed material, non-public information (“inside information”) that he acquired in his capacity as a member of the Board of Directors of Goldman Sachs, with the understanding that Rajaratnam would use the inside information to purchase and sell securities. Rajaratnam, in turn, caused the execution of transactions in the securities of Goldman Sachs on the basis of the inside information and shared the inside information with others at Galleon, thereby earning illegal profits, and illegally avoiding losses, of millions of dollars. On separate occasions that were proven at trial, Gupta gave Rajaratnam inside information that included highly sensitive and secret information. Illegal tips that were proven at trial include the following:

The September 23, 2008 Goldman Sachs Tip

The evidence at trial proved that, on September 23, 2008, within approximately 60 seconds after the conclusion of a Goldman Sachs telephonic board meeting in which the Board approved a $5 billion investment by Berkshire Hathaway, Gupta spoke with Rajaratnam. Immediately following the call, Rajaratnam directed two separate traders to purchase approximately $43 million of Goldman Sachs stock within minutes before the close of trading. During two court-authorized wiretapped conversations the following morning on September 24, 2008 between Rajaratnam and his principal trader and coconspirator, Ian Horowitz, Rajaratnam said that he received a call at 3:58 p.m. the day before telling him “something good’s gonna happen” at Goldman Sachs, that he directed the two traders to buy Goldman shares before the market closed, and that he could not yell this information out on Galleon’s trading floor. The evidence at trial showed that, based on Gupta’s illegal tip, Rajaratnam and co-conspirator Gary Rosenbach earned over $1 million in illegal profits.

The October 23, 2008 Goldman Sachs Tip

The evidence at trial proved that, on October 23, 2008, Gupta participated on a Goldman Sachs Board posting call during which he learned that Goldman Sachs was losing money for the quarter, which Goldman Sachs had never done since becoming a public company. Just 23 seconds after that call ended, Gupta called Rajaratnam. Following that call, at the first available opportunity after the stock market reopened, Rajaratnam started to sell his entire holdings in Goldman Sachs stock. Later that day, during a court-authorized wiretapped conversation, Rajaratnam explained to a senior portfolio manager at Galleon International that Rajaratnam had spoken with a member of the Board of Goldman Sachs and learned that Goldman Sachs was losing money during the quarter while Wall Street analysts expected the company to make money. The evidence at trial showed that, based on Gupta’s illegal tip, Rajaratnam was able to avoid losses of several million dollars.

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Gupta, 63, of Westport, Connecticut, was found guilty of one count of conspiracy to commit securities fraud and three counts of securities fraud. He was acquitted on two securities fraud counts. The conspiracy count carries a maximum sentence of five years in prison and a maximum fine of the greater of $250,000 or twice the gross gain or loss from the offense. Each of the securities fraud counts carries a maximum sentence of 20 years in prison and a fine of $5 million. Gupta will be sentenced on October 18, 2012.

Rajaratnam was convicted in a jury trial on May 11, 2011 of 14 counts of conspiracy and securities fraud. He was sentenced on October 13, 2011 to 11 years in prison and was ordered to pay forfeiture in the amount of $53,816,434 and a $10 million fine.

Mr. Bharara praised the outstanding efforts of the FBI. He also thanked the SEC for its assistance in the investigation.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Assistant U.S. Attorneys Reed Brodsky and Richard C. Tarlowe are in charge of the prosecution.

– Statement by FBI New York Assistant Director in Charge Janice K. Fedarcyk on Gupta’s conviction”

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Douglas McNabb – McNabb Associates, P.C.’s
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Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.