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U.S. Securities and Exchange Commission

Litigation Release No. 21827 / January 26, 2011

SEC v. Adam Smith, Civil Action No. 11-CV-0535 (SDNY)

SEC Charges Former Galleon Portfolio Manager in its Ongoing Investigation

On January 26, 2011, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York alleging that Adam Smith — a former portfolio manager of the Galleon Emerging Technology funds (f/k/a the Galleon Communications funds) engaged in insider trading in the securities of ATI Technologies, Inc. The SEC alleges that Smith caused the Galleon funds he advised to purchase shares of ATI based on material non-public information concerning Advanced Micro Devices Inc.’s $5.4 billion takeover of ATI in July, 2006. The trading generated over $1.3 million in illicit profits.

According to the SEC’s complaint, Smith obtained material non-public information concerning the AMD/ATI transaction from an investment banking source that Smith had known for years. This source, according to the SEC, provided Smith with the tip in order to win favors from Galleon such as securing investment banking work from, or obtaining future employment with, Galleon. The complaint filed today relates to a pending enforcement action, SEC v. Galleon Management, LP, et al., 09-CV-8811 (S.D.N.Y.) (JSR).

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

The SEC has now charged 28 defendants in its Galleon-related enforcement actions which have 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 Raj Rajaratnam — and by other professional traders and corporate insiders in the securities of 14 companies generating illicit profits totaling over $70 million.

In addition, since the Galleon-related cases were filed, the SEC has:

  • entered into a settlement with Rajiv Goel, a former managing director in the treasury group of Intel Corp., 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 Roomy 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 Anil 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 Schottenfeld Group, LLC, 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.
     
  • entered into settlements with Choo-Beng Lee and Ali T. Far, who were both managing members of Far & Lee LLC, a Delaware limited liability company. In addition, Lee was president and Far a managing member of Spherix Capital LLC, 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), 21732 (November 8, 2010), 21740 (November 15, 2010) and 21802 (January 10, 2011).

 

 

http://www.sec.gov/litigation/litreleases/2011/lr21827.htm


Modified: 01/13/2011