U.S. Securities and Exchange Commission

Litigation Release No. 21740 / November 15, 2010

SEC v. Thomas C. Hardin, Civil Action No. 10-CV- 8600 (SDNY)

SEC Charges Hedge Fund Manager with Insider Trading in an Action Related to the Galleon Investigation

On Friday, November 12, 2010, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging Thomas C. Hardin, a former managing director at a New York-based hedge fund investment adviser, Lanexa Management LLC, for insider trading in connection with two corporate takeovers and a quarterly earnings announcement. The illicit profits at Lanexa resulting from Hardin’s conduct alleged in this filing exceed $950,000. The complaint filed last Friday relates to an ongoing enforcement action, SEC v. Galleon Management, LP, et al., 09-CV-8811 (S.D.N.Y.) (JSR).

In SEC v. Galleon, the SEC has, as of today, charged twenty-two defendants and alleged widespread and repeated insider trading at numerous hedge funds, including Galleon, a multi-billion dollar New York hedge fund complex founded and controlled by defendant Raj Rajaratnam, and by other professional traders in the securities of fourteen issuers generating illicit profits totaling approximately $53 million.

The SEC’s most recent complaint related to this action, filed last Friday in federal court in Manhattan, charges Hardin with trading in the securities of Hilton, Google and Kronos based on material nonpublic information that Hardin allegedly received from Roomy Khan, an individual investor who had, herself, received such information from various sources.

The SEC’s complaint alleges that Khan tipped Hardin to inside information she received from a Moody’s rating agency analyst, about an impending takeover of Hilton by The Blackstone Group. According to the allegations, Hardin traded on the information on behalf of Lanexa and also passed the information to others, who similarly traded on the information. Khan also shared with Hardin inside information she received from an employee at Market Street Partners, an investor relations consulting firm that did work for Google, about Google’s Q2 2007 earnings. Hardin traded on the information on behalf of Lanexa and also tipped others. Finally, Khan tipped Hardin to inside information she received about the impending acquisition of Kronos by Hellman & Friedman. Hardin traded on the information on behalf of Lanexa and also tipped others, who traded on the information.

The SEC’s complaint charges Hardin with violations of the antifraud provisions of the federal securities laws, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining Hardin from future violations of the antifraud provisions, ordering him to disgorge ill-gotten gains plus prejudgment interest, and ordering him to pay financial penalties.

In addition, since the case was filed the SEC has:

  • entered into a settlement with Defendant Rajiv Goel (“Goel”), a former managing director in the treasury group of Intel Corp. (“Intel”), as well as the Director of Strategic Investments at Intel Capital, an Intel subsidiary that makes proprietary equity investments in technology companies. Pursuant to the settlement, Goel is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act. Goel is also required to pay disgorgement in the amount of $230,570.52, plus prejudgment interest in the amount of $23,447.21, for a total of $254,017.73. The Court will determine at a later date whether any civil penalty is appropriate as to Goel. Finally, Goel is barred from acting as an officer or director of any public company. Goel has agreed to cooperate with the SEC in connection with this action and related investigations.
     
  • entered into a settlement with Defendant Roomy Khan (“Khan”), an individual investor who had been employed at Intel in the late 1990s and had been subsequently employed at Galleon, pursuant to which Khan is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act, and is required to pay disgorgement in the amount of $1,552,566.94, plus prejudgment interest in the amount of $304,398.77, for a total of $1,856,965.71. The Court will determine at a later date whether any civil penalty is appropriate as to Khan. Khan has agreed to cooperate with the SEC in connection with this action and related investigations.
     
  • entered into a settlement with Defendant Anil Kumar (“Kumar”), a former director at the global consulting firm McKinsey & Co., pursuant to which Kumar is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act, and is required to pay disgorgement in the amount of $2.6 million, plus prejudgment interest in the amount of $190,621, for a total of $2,790,621. The Court will determine at a later date whether any civil penalty is appropriate as to Kumar. Kumar has agreed to cooperate with the SEC in connection with this action and related investigations.
     
  • entered into a settlement with Defendant Schottenfeld Group, LLC (“Schottenfeld”), a New York limited liability company and registered broker-dealer, pursuant to which Schottenfeld is permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act, and is required to pay disgorgement in the amount of $460,475.28, plus prejudgment interest in the amount of $72,202.72, and a civil penalty of $230,237.64, representing fifty percent of the disgorgement amount, a discount from a one-time penalty in recognition of its agreement to cooperate. Schottenfeld also agreed to implement enhanced policies and procedures to prevent future securities laws violations, as well as to retain an independent consultant to review its policies and procedures within one year, and to report its findings to the SEC staff.
     
  • entered into settlements with Defendants Choo-Beng Lee (“Lee”) and Ali T. Far (“Far”), who were both managing members of Far & Lee LLC (“Far & Lee”), a Delaware limited liability company. In addition, Lee was president and Far a managing member of Spherix Capital LLC (“Spherix”), an unregistered hedge fund investment adviser based in San Jose, California. Pursuant to the settlements, Lee and Far are permanently enjoined from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act, Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act, and are required, jointly and severally, to pay disgorgement in the amount of $1,335,618.17, plus prejudgment interest in the amount of $96,385.52, and a civil penalty of $667,809.09, representing fifty percent of the disgorgement amount, a discount from a one-time penalty in recognition of their cooperation.
     
  • dismissed its claims against Far & Lee and Spherix, which are now defunct or nearly so, in exchange for their agreement to cooperate and cease doing business.

For further information, see Litigation Release Nos. 21255 (October 16, 2009), 21284 (November 5, 2009), 21397 (January 29, 2010), 21493 (April 20, 2010), 21526 (May 17, 2010), and 21732 (November 8, 2010).

See Also: SEC Complaint

 
http://www.sec.gov/litigation/litreleases/2010/lr21740.htm

Last modified: 11/15/2010