U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21758 / November 30, 2010

Securities and Exchange Commission v. Arnold McClellan and Annabel McClellan, Case No. CV-105412 (JCS) (N.D. Cal. filed November 30, 2010)

SEC CHARGES FORMER DELOITTE PARTNER AND WIFE IN INTERNATIONAL INSIDER TRADING SCHEME

The Securities and Exchange Commission today charged a former Deloitte Tax LLP partner and his wife with repeatedly leaking confidential merger and acquisition information to family members overseas in a multi-million dollar insider trading scheme.

The SEC alleges that Arnold McClellan and his wife Annabel, who live in San Francisco, provided advance notice of at least seven confidential acquisitions planned by Deloitte's clients to Annabel's sister and brother-in-law in London. After receiving the illegal tips, the brother-in-law took financial positions in U.S. companies that were targets of acquisitions by Arnold McClellan's clients. His subsequent trades were closely timed with telephone calls between Annabel McClellan and her sister, and with in-person visits with the McClellans. Their insider trading reaped illegal profits of approximately $3 million in U.S. dollars, half of which was to be funneled back to Annabel McClellan.

The UK Financial Services Authority (FSA) has announced charges against the two relatives – James and Miranda Sanders of London. The FSA also charged colleagues of James Sanders whom he tipped with the nonpublic information in the course of his work at his London-based derivatives firm. Sanders's tippees and clients of his trading firm made approximately $20 million in U.S. dollars by trading on the inside information.

According to the SEC's complaint, Arnold McClellan had access to highly confidential information while serving as the head of one of Deloitte's regional mergers and acquisitions teams. He provided tax and other advice to Deloitte's clients that were considering corporate acquisitions.

The SEC alleges that between 2006 and 2008, James Sanders used the non-public information obtained from the McClellans to purchase derivative financial instruments known as "spread bets" that are pegged to the price of the underlying U.S. stock. The trading started modestly, with James Sanders buying the equivalent of 1,000 shares of stock in a company that Arnold McClellan's client was attempting to acquire. Subsequent deals netted significant trading profits, and eventually James Sanders was taking large positions and passing along information about Arnold McClellan's deals to colleagues and clients at his trading firm as well as to his father.

Among the confidential impending transactions allegedly revealed by McClellan:

  • Kronos Inc., a Massachusetts-based data collection and payroll software company acquired by a private equity firm in 2007.
  • aQuantive Inc., a Seattle-based digital advertising and marketing company acquired by Microsoft in 2007.
  • Getty Images Inc., a Seattle-based licenser of photographs and other visual content acquired by a private equity firm in 2008.

The SEC's complaint alleges the following chronology involving insider trading around the Kronos transaction:

  • November 2006: Arnold McClellan begins advising Deloitte client on planned Kronos acquisition.
  • Jan. 29, 2007: McClellan signs confidentiality agreement.
  • Jan. 31, 2007: Following call from Annabel's cell phone, James Sanders begins buying Kronos spread bets in his wife's account.
  • March 11, 2007: Arnold McClellan has two-hour cell phone call with client to discuss acquisition. Less than an hour later, call from same cell phone to Annabel's family.
  • March 12-14, 2007: James Sanders increases size of Kronos bets.
  • March 16, 2007: James Sanders informs another family member that Annabel is the source of his tips; describes his agreement to split profits with her 50/50.
  • March 23, 2007: Deloitte client publicly announces Kronos acquisition. Kronos stock price increases 14 percent; James Sanders and other tippees reap approximately $4.9 million in U.S. dollars.

The SEC's complaint charges Arnold and Annabel McClellan with violating the antifraud provisions of the federal securities laws. The complaint seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and financial penalties.

The SEC acknowledges the assistance of the UK Financial Services Authority, the U.S. Attorney's Office for the Northern District of California, and the Federal Bureau of Investigation during the investigation.

See Also: SEC Complaint

On October 25, 2011, the Court approved a settlement of the Commission's claims against Annabel McClellan.  Without admitting or denying the allegations, Ms. McClellan agreed to pay a $1 million civil penalty and consented to the entry of a final judgment that enjoined her from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  In a related action, the Commission requested the dismissal of the insider trading claims against Arnold McClellan, which the Court subsequently granted with prejudice.  For additional information, see Litigation Release No. 22139 (Oct. 25, 2011).

 
http://www.sec.gov/litigation/litreleases/2010/lr21758.htm

Last modified: 03/07/2013