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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21283 / November 5, 2009

Securities and Exchange Commission v. Arthur J. Cutillo, Jason C. Goldfarb, Zvi Goffer, Craig C. Drimal, Schottenfeld Group, LLC, Gautham Shankar, David Plate, Emanuel Goffer, and Michael Kimelman, Civil Action No. 09-09208 (LAK) (S.D.N.Y.)

SEC Charges Wall Street Ring that Made Over $20 Million Serially Trading on Acquisition Information Tipped by Attorney at International Law Firm

The Securities and Exchange Commission today announced insider trading charges against nine defendants in a case involving serial insider trading by a ring of Wall Street traders and hedge funds who made over $20 million trading ahead of corporate acquisition announcements using inside information tipped by an attorney at the international law firm of Ropes & Gray LLP, in exchange for kickbacks. The SEC alleges that Arthur J. Cutillo, an attorney in the New York office of Ropes & Gray, misappropriated from his law firm material, nonpublic information concerning at least four corporate acquisitions or bids involving Ropes & Gray clients — the 2007 acquisitions of Alliance Data Systems Corp. ("ADS"), Avaya Inc. ("Avaya"), 3Com Corp. ("3Com"), and Axcan Pharma Inc. ("Axcan").

The complaint alleges that Cutillo, through his friend and fellow attorney Jason Goldfarb, tipped inside information concerning these acquisitions to Zvi Goffer, a proprietary trader at the broker-dealer Schottenfeld Group, LLC ("Schottenfeld"). The complaint further alleges that Zvi traded on this information for Schottenfeld, and had numerous downstream tippees who also traded on the information, including other professional traders and portfolio managers at two hedge fund advisers.

The Commission's complaint names the following defendants and includes the allegations set forth below:

Arthur J. Cutillo, a resident of Ridgewood, New Jersey, is an attorney in the New York office of the international law firm of Ropes & Gray. Cutillo misappropriated from his law firm material, nonpublic information concerning at least four corporate acquisitions involving Ropes & Gray clients — the 2007 acquisition announcements of ADS, Avaya, 3Com, and Axcan. Cutillo illegally tipped that information, through his friend and fellow attorney Jason Goldfarb, to Zvi Goffer, a proprietary trader Schottenfeld, in exchange for kickbacks.

Jason C. Goldfarb, a resident of New York, New York, is an attorney in private practice in New York. Goldfarb illegally tipped Zvi Goffer material, nonpublic information concerning upcoming corporate acquisitions that Cutillo misappropriated from Ropes & Gray, in exchange for kickbacks.

Zvi Goffer, a resident of New York, New York, is currently employed at Echotrade LLC ("Echotrade"), registered broker-dealer, and is also a trader at Incremental Capital, LLC ("Incremental Capital"). During the relevant time period, Zvi Goffer was a registered representative and proprietary trader at Schottenfeld, a registered broker-dealer. Zvi Goffer illegally traded on and/or tipped material, nonpublic information concerning the proposed acquisitions of Avaya, 3Com, and Axcan.

Craig C. Drimal, a resident of Weston, Connecticut. Drimal is a trader who, during part of the relevant time period, worked out of the offices of Galleon Management, LP. Currently, Drimal is a registered representative at Echotrade and is also a trader at Incremental Capital. Drimal illegally traded on and/or tipped material, nonpublic information concerning the proposed acquisitions of Avaya, 3Com, and Axcan.

Schottenfeld Group, LLC is a registered broker-dealer located in New York, New York. Schottenfeld illegally traded on material, nonpublic information concerning the proposed acquisitions of Avaya, 3Com, and Axcan.

Gautham Shankar is a resident of New Canaan, Connecticut. During the relevant time period, Shankar was a registered representative and proprietary trader at Schottenfeld. Shankar illegally traded on and tipped material, nonpublic information concerning the proposed acquisitions of Avaya, 3Com, and Axcan.

David Plate, a resident of New York, New York, is a registered representative at G-2 Trading LLC, a registered broker-dealer. During the relevant time period, Plate was a registered representative and proprietary trader at Schottenfeld. Plate illegally traded on material, nonpublic information concerning the proposed acquisitions of Avaya, 3Com, and Axcan.

Emanuel Goffer, a resident of New York, New York, is employed at Echotrade and is also a trader at Incremental Capital. During the relevant time period, Emanuel Goffer was a registered representative and proprietary trader at Spectrum Trading LLC, a registered broker-dealer. Emanuel Goffer illegally traded on material, nonpublic information concerning the proposed acquisitions of Avaya and 3Com.

Michael A. Kimelman, a resident of Larchmont, New York, is a registered representative at Echotrade and also is a trader at Incremental Capital. During the relevant time period, Kimelman was a trader at Lighthouse Financial Group LLC, an investment bank and registered broker-dealer. Kimelman illegally traded on material, nonpublic information concerning the proposed acquisition of 3Com.

As a result of conduct described in the complaint, the Commission alleges that each of the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission's complaint seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of civil monetary penalties.

In a related criminal case, the U.S. Attorney's Office for the Southern District of New York announced today criminal charges against Cutillo, Goldfarb, Zvi Goffer, Drimal, Shankar, Plate, Emanuel Goffer, and Kimelman, in connection with the above insider trading schemes.

The Commission thanks the U.S. Attorney's Office and the Federal Bureau of Investigation for their cooperation and assistance in connection with this matter.

The Commission's investigation is continuing.

SEC Complaint

 

http://www.sec.gov/litigation/litreleases/2009/lr21283.htm


Modified: 11/05/2009