Three Implicated; Two Face Criminal Charges
It seems like insider trading has become rampant within the investment community lately. Go to any investment news source or regulatory agency site, and you will probably read of yet another incident of insider trading. Often you will see a joint effort among regulatory agencies and sometimes even the feds get involved. The ramifications for these illegal actions are often fines, penalties, and maybe even time in jail, yet the temptation seems too great for a lot of people to resist. The scope of those who engage in this activity is vast. It may be an investment advisor or broker, a law clerk working in the office of attorneys who handle mergers and acquisitions, or occasionally it’s the spouse or friend of one of these people who happen to be privy to conversations regarding non-public information. These people stand to realize substantial sums by buying or selling shares based upon information they glean, and don’t see anything wrong with doing so. Surely anyone who is involved in investing knows it’s wrong, but maybe don’t understand why it’s wrong. The fact is that the investment industry is strictly monitored and its laws enforced to ensure that everyone stands to gain or lose funds based upon a fair market. When someone has “inside” information, they inherently have an unfair advantage over the majority of investors.
A recent investigation by the Securities and Exchange Commission (SEC) revealed that three such advantaged sales managers at San Diego, Ca.-based Qualcomm, Inc. exploited their positions within the wireless technology company by engaging in insider trading. According the SEC complaint, on January 3, 2011, Derek Cohen and Robert Fleischli attended a meeting during which a high-level executive within the company discussed a ” target=”_ as being Atheros Communications. It was clearly conveyed that this company was the subject of an impending acquisition, and the attendees of this meeting were reminded that this was a confidential matter.
After an exchange of phone calls that included sales manager Robert Herman, all three men purchased stock in Atheros on January 4, 2011, although none of them had previously invested in this company. Within hours of making their investments, news of the impending merger was apparently leaked to the New York Times driving the stock price up by more than 20%. The following day, Qualcomm purchased Atheros for more than $3 billion. When the news of the acquisition became public, the men quickly sold their newly acquired stock, gleaning profits of more than $200,000 for Cohen, nearly $30,000 for Herman, and just over $3,000 for Fleischli.
“As alleged in our complaint, Qualcomm placed trust in these sales managers who proceeded to exploit the confidential information shared with them and conduct insider trading for their personal gain,” said Michele Wein Layne, director of SEC’s Los Angeles Regional Office.
The indictment against Cohen and Herman states that initially the men told Qualcomm attorneys that they only purchased the stock after they read the leaked story in the New York Times. Each of the men, however, eventually conceded that he was aware that Qualcomm’s code of business conduct strongly emphasized that insider trading was illegal and grounds for termination. Consequently, all three men were terminated last September when Qualcomm became aware that they had traded on the confidential information.
Qualcomm spokeswoman, Christine Trimble, said, “We have been fully cooperating with the government’s investigation, and these matters will now be addressed through the legal system.”
The SEC is seeking the surrender of the illegally obtained profits, pre-judgment interest, other financial penalties, and permanent injunctions against the men to prevent them from committing any further such violations.
The U.S. Attorney’s Office for the Southern District of California has filed criminal charges against both Cohen and Herman. The U.S. attorney’s office stated that Cohen was arrested at Los Angeles International Airport on May 10th. He pleaded not guilty when he appeared in court on May 12th and was to be released on a $100,000 bond. The U.S. attorney’s office also said that as of May 12th, Herman was still at large.
If you feel that you have been negatively impacted due to the insider trading committed by Cohen, Fleischli, or Herman, please call us at the Blum Law Group for a free consultation at 1-877-STOCK-LAW.
Sources: www.sec.gov (press release, complaint); www.google.com/finance (online news article); www.justice.gov (press release)