SEC Landmark Non-prosecution Deal in Insider Trading Racket

Six Charged, Many Others Suspected

Often being in a position of power just presents too much temptation for some people to withstand and then abuses of power manifest in a variety of ways. Whether it’s mistreating employees or slipping a twenty dollar bill out of a cash drawer, some people just take advantage of their position. Such is the case with a recent Securities and Exchange Commission (SEC) investigation into acts of insider trading by former GSI Commerce executive, Christopher Saridakis.

In March, 2011, negotiations were underway for a merger between GSI Commerce and eBay. As the chief operating officer for the marketing solutions division of GSI, Saridakis was privy to information about the acquisition and even attended a meeting regarding the action. In holding that position, he was well-aware that GSI was diligent in trying to keep the merger covert, yet prior to the acquisition by eBay, he informed two of his family members of the impending deal. Not only did he continue to advance by becoming president of the company, eBay Enterprise, after the merger, the family members in whom he confided traded on the information he gave them to a profit of $41,060.

Saridakis’s actions took on the type of frenzy that was promoted in that 1980’s shampoo commercial. First, he told the two family members about the merger and then also revealed the same information to two of his friends in the weeks prior to the merger. One such friend, according the SEC’s complaint, is long-time acquaintance, Jules Gardner. Saridakis kept Gardner abreast of the machinations of the merger through a series of text messages. One of these text messages was sent a week prior to the announcement of the merger by Saridakis to Gardner urging him to purchase GSI shares. True to the strategy of that 1980’s viral shampoo marketing concept, Gardner talked to friends about the text messages he had received from Saridakis. Those friends then also traded and profited on the information.

Suken Shah was one of the friends that benefitted from Saridakis’s penchant for sharing information. After the March 11 eBay meeting that Saridakis attended, he discussed the matter with Shah who then traded on the information, earning $9,838 from the insider information. Shah then also shared the tip with his brother, Shimul Shah, and a friend. This resulted in a separate administrative proceeding against Shimul Shah who had tipped several other people while he attended a dinner with friends. It was at this dinner that the individual who entered into the non-prosecution agreement learned of the insider trading information.

As often happens when people talk excessively, the SEC was able to disentangle this web of insider trading, in large part, due to wide-spread collaboration from some of the participants who had received the tips either from Saridakis or those with whom he shared the non-public information. Five of these traders have also been charged by the SEC. In the case of one trader in particular, the SEC has entered into a non-prosecution agreement because the information that this particular trader provided was integral in helping the regulatory agency uncover many of the details of the insider trading scheme. This is a historic event for the SEC as it is the first time the agency has entered into such an agreement. This pact may yield even greater assistance to the SEC as it continues to investigate other individuals who may have traded on this non-public information.

The Penalties
In light of the fact that many of those who benefitted from these acts of insider trading have helped the SEC in its investigation, most of the traders received nothing more than monetary penalties. The five traders who were involved as well as the individual who the SEC chose not to prosecute will have to pay more than $490,000. These penalties range from disgorgement only to reduced penalties for those who were willing to assist the SEC in their investigation, yet some traders were required to pay two or three times the amount that they profited by their involvement.

As for Saridakis, he resigned from his position as president of eBay Enterprises, and he has agreed to pay $664,822 which includes disgorgement on behalf of his family members and penalties. In settling the SEC charges against him, he has also agreed to an officer-and-member bar. Additionally, the U.S. Attorney’s Office has announced criminal charges against him.

In a separate action concerning insider trading of GSI stock, the SEC settled administrative proceedings against two other traders who are unrelated to the Saridakis matter. The investigation determined that the spouse of an insider at GSI learned of the proposed merger and divulged the information to a friend. This friend then informed Oded Gabay who passed the information along to Aharon Yehuda. Both of these individuals acted upon the information by trading in GSI stock. Although Gabay agreed to pay almost $47,000 in disgorgement, interest, and penalties, the SEC reduced this amount to just over $22,000, 50% of his and Yehuda’s trading profits, because he cooperated in the investigation. Yehuda agreed to settle the charges by paying $43,146 in disgorgement, interest, and penalties.

The Blum Law Group specializes in helping people who have been victimized by brokers/firms. If you believe you have suffered financial losses as the result of the practices of any of these insider traders, please give us a call at 1-877-STOCK-LAW for a free consultation.