The new defendants include a New York hedge fund advisory firm, its hedge fund manager, an analyst at the hedge fund, a senior corporate executive in the technology sector, and an investor relations firm employee.
The SEC alleged that Robert Feinblatt — a co-founder and principal of New York-based hedge fund investment adviser Trivium Capital Management LLC — and Trivium analyst Jeffrey Yokuty engaged in insider trading in the securities of Polycom, Hilton, Google and Kronos.
The SEC further charged that Polycom senior executive Sunil Bhalla and Shammara Hussain, an employee at investor relations consulting firm Market Street Partners that did work for Google, tipped the inside information that enabled the insider trading by Feinblatt and Yokuty on behalf of Trivium’s hedge funds for illicit profits of more than $15 million.
“Today’s action reveals disturbingly corrupt arrangements — faithless company executives who secretly pass corporate information to hedge fund managers willing to violate the law for profit,” said Robert Khuzami, Director of the SEC’s Division of Enforcement, in the news release. “Market participants need to understand that by engaging in such behavior they invite SEC scrutiny, and we will uncover their conduct and take aggressive action.”
The SEC has now charged 27 defendants in its SEC v. Galleon enforcement action that has alleged widespread and repeated insider trading at numerous hedge funds including Galleon — a multi-billion dollar New York hedge fund complex founded and controlled by Raj Rajaratnam — and by other professional traders in the securities of 14 companies generating illicit profits totaling approximately $69 million.
More Allegations Details
In the SEC's complaint, the agency alleged that Feinblatt and Yokuty traded on behalf of Trivium in connection with two corporate takeovers and two quarterly earnings announcements based on material nonpublic information that Feinblatt and Yokuty allegedly received from Roomy Khan, an individual investor who herself received such information from various sources.
The SEC said that Bhalla tipped Khan to inside information about Polycom's 2005 fourth quarter earnings, and Khan traded on that information and tipped others. Those getting the tips included Feinblatt and Yokuty, who traded on behalf of Trivium based on the information. Bhalla also tipped Khan with inside information about Polycom's 2006 first quarter earnings, regulators alleged.
Khan traded on the information and tipped Rajaratnam, who traded on behalf of Galleon based on the inside information. The SEC also alleges that Khan traded on and tipped Feinblatt and Yokuty among others with inside information that she received from a Moody's rating agency analyst about an impending takeover of Hilton by The Blackstone Group. Feinblatt and Yokuty then traded on behalf of Trivium based on the inside information.
The SEC further alleges that Hussain tipped Khan among others with inside information about Google's 2007 second quarter earnings. Khan traded on the information and also tipped Feinblatt and Yokuty, who traded on behalf of Trivium based on the inside information. The SEC also alleges that Khan traded on and tipped Feinblatt and Yokuty among others with inside information that she received about the impending acquisition of Kronos by Hellman & Friedman. Feinblatt and Yokuty then traded on behalf of Trivium based on the inside information.
The SEC's complaint charges the defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 and, except for Bhalla, with violations of Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties. The complaint also seeks to permanently prohibit Bhalla from acting as an officer or director of any registered public company.
More information is at http://www.sec.gov/litigation/litreleases/2011/lr21802.htm.