U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21339 / December 16, 2009
Securities and Exchange Commission v. Vinayak S. Gowrish, Adnan S. Zaman, Pascal S. Vaghar, Sameer N. Khoury, Defendants, and Elias N. Khoury, Relief Defendant, 09-CV-5883 (N.D. Cal.) (Dec. 16, 2009)
SEC CHARGES FORMER EMPLOYEES OF GLOBAL FIRMS IN SERIAL INSIDER TRADING SCHEME
The Securities and Exchange Commission today announced charges against two former employees at major global financial institutions and two of their friends in a serial insider trading scheme to profit on highly confidential merger and acquisition information.
The Commission’s complaint alleges that Vinayak S. Gowrish, a former associate at multi-billion dollar private equity firm TPG Capital L.P., and Adnan S. Zaman, a former vice president and investment banker at Lazard Frères & Co. LLC, stole confidential information from their firms in connection with five deals and tipped two friends - Pascal S. Vaghar and Sameer N. Khoury - in exchange for kickbacks. Vaghar and Khoury both then traded stock and options on the basis of the nonpublic information and made nearly $500,000 in illicit profits. Zaman, Vaghar, and Khoury have agreed to settle the charges against them by consenting to the entry of final judgments imposing the relief detailed below, without admitting or denying the allegations in the Commission’s complaint.
According to the SEC’s complaint in the case, the illegal tips, trades, and kickback payments were structured to avoid detection. They exchanged illegal tips through coded text messages and yellow sticky notes. Vaghar often wrote checks made payable to himself or cash rather than to Gowrish or Zaman directly so as not to create a paper trail. Vaghar also gave his credit card to Zaman so he could charge purchases of personal items in stores and on the Internet for himself in Vaghar’s name. As alleged in the complaint, they also attempted to avoid drawing regulatory scrutiny to their illegal activities by deliberately trading relatively small amounts of the targeted securities.
According to the SEC’s complaint, filed in U.S. District Court for the Northern District of California, Gowrish misappropriated and illegally tipped material, nonpublic information that TPG was in negotiations to acquire Sabre Holdings Corp., TXU Corp., and Alliance Data Systems Corp. Gowrish illegally tipped this information to Zaman, who then tipped the inside information to Vaghar and Khoury. The SEC further alleges that Zaman misappropriated and illegally tipped material, nonpublic information that Lazard clients were in negotiations to acquire webMethods, Inc. and Myogen, Inc. Zaman tipped the information to Vaghar and Khoury through in-person meetings or by writing trading instructions – including the ticker symbol of the call option (or stock) and the number of contracts (or shares) to purchase – on yellow sticky notes. Coded text messages were used to exchange trading instructions. In exchange for the confidential information, the complaint alleges, Gowrish received cash kickbacks from Vaghar, and Zaman received kickbacks in the form of cash, free rent, and other items of value from Vaghar and Khoury totaling approximately $70,000.
To settle today’s charges, Zaman, Vaghar, and Sameer Khoury have consented to the entry of final judgments permanently enjoining them from violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. Zaman and Vaghar will also be enjoined from violations of Section 14(e) of the Exchange Act and Rule 14e-3 thereunder.
Additionally, Zaman has consented to (i) disgorge $78,456 in ill-gotten gains and prejudgment interest thereon, and (ii) the issuance of an administrative order permanently barring him from associating with any broker or dealer. The final judgment against Vaghar further imposes $366,001 in disgorgement and prejudgment interest thereon, but waives all but $33,000 of that amount – and does not impose a civil penalty – based on his demonstrated inability to pay. The final judgment against Sameer Khoury imposes $198,607 in disgorgement and prejudgment interest thereon, but waives payment, and does not impose a civil penalty, based on a demonstrated inability to pay. Finally, Elias Khoury has consented to the entry of a final judgment ordering him, as a relief defendant, to pay a total of $6,700, consisting of disgorgement of $5,836 and prejudgment interest thereon of $864.
The Commission is seeking permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of financial penalties against Gowrish.
The Commission thanks the U.S. Attorney’s Office for the Northern District of California, the Federal Bureau of Investigation, and the Chicago Board Options Exchange, Inc. for their cooperation and assistance in connection with this matter.