U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19210 \ April 28, 2005
SECURITIES AND EXCHANGE COMMISSION v. ERNESTO SIBAL, ET AL., Civil Action No. CV 05-3133 GPS (AJWx) (C.D. CA)(filed April 28, 2005)
SEC SUES SIX INDIVIDUALS, INCLUDING FIVE FORMER INDUSTRY INSIDERS, FOR INSIDER TRADING SCHEMES
SETTLING DEFENDANTS TO PAY OVER $1.1 MILLION IN DISGORGEMENT, PREJUDGMENT INTEREST AND PENALTIES
U.S. ATTORNEY FOR THE CENTRAL DISTRICT OF CALIFORNIA FILES FELONY CHARGES AGAINST FIVE INDIVIDUALS FOR SAME CONDUCT
The Securities and Exchange Commission today filed settled enforcement proceedings against five individuals, Ernesto V. Sibal ("Sibal"), Doseph J. Shin ("Shin"), Chae Hyon Chin ("Chin"), Benjamin Y. Chiu ("Chiu") and Pejman Sabet ("Sabet'') and an unsettled action against a sixth individual, Robert Y. Joo ("Joo") for their participation in fraudulent insider trading schemes that yielded collective profits in excess of $970,000. In its complaint, the Commission alleged that, during 2002 and 2003, Shin and Joo misappropriated material nonpublic information from the investment banks where they worked, respectively, Chanin & Co. LLC ("Chanin") and Houlihan Lokey Howard & Zukin, Inc. ("Houlihan"), and tipped Sibal, Chin, Chiu and Sabet in advance of one or more of four separate merger transactions. The defendants used the misappropriated information to trade in the securities of one or more of the following companies: NCS Healthcare, Inc. ("NCS"), The DeWolfe Companies, Inc. ("DeWolfe"), Prime Retail, Inc. ("Prime Retail") and Airborne, Inc. ("Airborne"). The complaint alleges that during the course of these multifaceted and highly profitable insider trading schemes, the individuals who executed the trades shared certain of their illegal profits with, or paid kickbacks to, Shin and/or Joo.
The Commission's complaint alleges that the schemes began in or around July 2002, when Shin misappropriated information from Chanin concerning a tender offer for its client, NCS. Shin shared this information with Joo, who then tipped Chiu, a colleague of his at Houlihan. Chiu purchased shares of NCS shortly before the public announcement of the tender offer and reaped illegal profits of $11,330. Chiu paid a kickback to Joo of approximately $1,200, which Joo split with Shin.
The complaint further alleges that, in or around August 2002, Joo misappropriated information from Houlihan concerning a tender offer for its client, DeWolfe. Joo shared this information with Shin, who then tipped Sibal, a colleague of his at Chanin. Sibal purchased shares of DeWolfe shortly before the public announcement of the tender offer and reaped illegal profits of $129,298. Sibal paid Shin a kickback of approximately $4,500, which Shin split with Joo. Shin also tipped Chin, who purchased shares of DeWolfe for himself and Shin through various brokerage accounts he controlled. Through this trading, Chin made illegal profits of $13,792 and $11,645 for Shin. In addition to the tipping done by Shin, Joo tipped Sabet, who was a former Houlihan colleague. Sabet traded shares of DeWolfe through an account he controlled, made illegal profits of $4,805, and paid Joo a kickback of $1,000.
According to the Commission's complaint, beginning in approximately August 2002 and through a substantial part of 2003, Joo misappropriated information concerning Prime Retail, a client of Houlihan that it was assisting with financial restructuring, including identifying potential acquirors of the company. Joo shared material nonpublic information concerning Prime Retail with, among others, Shin, who in turn provided it to Sibal. Sibal bought Prime Retail stock on the basis of this material nonpublic information, and Shin also bought Prime Retail stock in his own account and through an account that Chin maintained on his behalf. The complaint further alleges that Shin provided material nonpublic information about Prime Retail to Chin and to others, who, in turn, bought Prime Retail stock. Through their illegal trading in shares of Prime Retail, Sibal made profits of $330,302, Shin made profits of $11,318, Chin made profits of $18,436, and Shin's other tippees made profits of $9,150.
Finally, the Commission's complaint also alleges that in February of 2003, Joo misappropriated material nonpublic information concerning Airborne, a Houlihan client, with regard to the potential sale of its ground operations unit to DHL Worldwide Express. As outlined in the complaint, Joo, along with Chiu, met with Shin and disclosed the impending deal. The trio discussed several series of call options in which they believed trading could yield substantial profits. Shin tipped Sibal, who purchased both Airborne stock and out of the money call options, and reaped illegal profits of $325,080. Sibal paid Shin a kickback of $11,400, of which Shin gave Joo $1,000. Shin also bought Airborne stock and out of the money call options, and made illegal profits of $50,194 - of which he paid Joo $12,000. Shin also tipped Chin, who purchased Airborne call options and made illegal profits of $54,425, which he split with Shin. Chiu tipped family members, who made $3,043 trading Airborne stock in advance of the merger announcement.
Without admitting or denying the Commission's allegations, Sibal, Shin, Chin, Chiu and Sabet have consented to the entry of a permanent injunction prohibiting them from further violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 14e-3 thereunder. These settling defendants have agreed to pay a total of $1,111,515.23 in disgorgement, prejudgment interest and penalties:
Joo has not settled with the Commission. The complaint against Joo seeks a permanent injunction against future violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties.
In addition, based upon the court's anticipated entry of the final judgment, Sibal, Shin and Chiu each have agreed, without admitting or denying the Commission's findings, to the issuance of a settled administrative order finding that each has violated Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder. The Commission Orders will bar Sibal and Shin from associating with any broker or dealer, and will bar Chiu from associating with any broker, dealer or investment adviser.
Today, in related criminal actions, the United States Attorney's Office for the Central District of California announced that Sibal, Shin, Chin, and Chiu each have agreed to plead guilty to conspiring to commit securities fraud and wire fraud - an offense carrying a maximum penalty of 5 years imprisonment and a fine of up to approximately $2 million. During the course of its investigation, the Federal Bureau of Investigation seized from Sibal, among other items, his brokerage accounts, valued at approximately $650,000, and his BMW X-5 automobile. As part of his plea, Sibal agrees to forfeit these items to the government. All four defendants also have agreed to pay full restitution to the victims of the offense.
Joo, who has not entered into any plea agreement, was arrested on criminal charges this morning. He is expected to make his initial court appearance this afternoon in federal court in Los Angeles.
The Commission acknowledges the assistance and cooperation of the United States Attorney for the Central District of California and the Federal Bureau of Investigation in the investigation of this matter.
The Commission's investigation is continuing.