Widespread “Expert Networks” Investigation by SEC Snags Dozens for Insider Trading

Nvidia Corp. Account Manager Latest Head to Roll

If it seems like there has been a lot of chatter in investment news lately regarding insider trading, it is probably due to the concentrated efforts of the Securities and Exchange Commission. In a huge push to more closely examine the practices of “expert networks,” the SEC has uncovered a large number of insider trading incidents among investment professionals, corporate employees, and hedge funds. This series of investigations has revealed that when it comes to insider trading, it is seldom one guy tipping off one of his buddies, but more likely a matter pervasive complicity within the investment industry. When you examine who tells what non-public information to whom, it’s like mapping a spider web; one that has amassed about $430 million in ill-gotten gains.

A recent example of the far-reaching effects of insiders’ failures to uphold their fiduciary responsibilities is Nvidia Corp., a California-based technology company. Last month, the SEC filed charges against Chris Choi, a former accounting manager at Nvidia. In 2009 and 2010, Choi shared information that pertained to the financial performance of Nvidia with a friend prior to the release of the company’s quarterly earnings reports. This started the ball rolling in a massive illegal trading scheme among hedge fund traders, but it was not the only incident of indiscretion perpetrated by Choi. On several occasions, he communicated other Nvidia private information to his friend that pertained to such matters as calculations of revenues and gross profit margins.

That friend, Hyung Lim, then divulged the same information to Danny Kuo, a hedge fund manager at Whittier Trust Company. Kuo took advantage of the situation by trading on the non-public information on behalf of his firm and even passed it along to analysts at Diamondback Capital Management, Level Global Investors LP, and Sigma Capital Management. These analysts then provided their portfolio managers with the information which resulted in trades that effected Nvidia securities, and the illicit trades garnered millions of dollars in profits for the traders.

Choi is the 45th person that the SEC has charged in their expert networks investigation, which is still ongoing. The complaint that the regulatory agency filed against Choi states that his actions not only helped others avoid losses, but bolstered their success when they traded on his information to a profit of $16.5 million. Lim, Kuo, Diamondback, Level Global, and Sigma Capital were all previously charged for exploiting the non-public information they had received as a result of Choi’s professional irresponsibility and lack of integrity.

“Insiders at public companies who are entrusted with confidential information are duty-bound to protect it,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office. “Choi violated that sacred duty by regularly tipping his friend with non-public financial data that hedge fund traders exploited for millions of dollars in illegal profits.”

Although Choi did not admit to the charges leveled against him, he has conceded to pay a $30,000 fine, and he will not be able to serve as an officer of a public company for five years. Additionally, he has acquiesced to the SEC’s requirement that he be forbidden from engaging in future violations of federal securities laws, but these SEC mandates are subject to court sanction.

If you feel that you have been financially impacted by the actions of Mr. Choi or any of the other traders or firms associated with these acts of insider trading, please give us a call at the Blum Law Group at 1-877-STOCK-LAW for a free consultation.