SEC Charges Former Employees of Global Firms in Serial Insider Trading Scheme
FOR IMMEDIATE RELEASE
Washington, D.C., Dec. 16, 2009 — The Securities and Exchange Commission today charged 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 SEC 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 in exchange for kickbacks. Pascal S. Vaghar and Sameer N. Khoury both then traded stock and options on the basis of the nonpublic information and made nearly $500,000 in illicit profits.
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. They also attempted to avoid drawing regulatory scrutiny to their illegal activities by deliberately trading relatively small amounts of the targeted securities.
"Confidential deal information is not just another commodity that can be traded for profit," said Robert Khuzami, Director of the SEC's Division of Enforcement. "These financial professionals betrayed their firms and clients to make some easy money with their friends, and they tried to cover their tracks to no avail."
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, 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.
The SEC's complaint charges each of the four defendants with violating the antifraud provisions of the federal securities laws. Zaman and Vaghar were also charged with violations of Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3 thereunder in connection with tipping and trading on material, nonpublic information concerning a tender offer. Zaman, Vaghar, and Sameer Khoury have offered to settle to full injunctive relief and disgorgement, and Zaman has agreed to be permanently barred from associating with any broker or dealer. In addition, Sameer Khoury's brother, Elias Khoury, who is not accused of any wrongdoing, consented to the entry of a final judgment ordering him, as a relief defendant, to disgorge the profits from trades Sameer Khoury executed in his account. The Commission is seeking permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of financial penalties against Gowrish.
The SEC 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. The SEC also acknowledges the cooperation of Lazard and TPG.
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For more information about this enforcement action, contact:
Scott W. Friestad
Associate Director, SEC's Division of Enforcement
Robert B. Kaplan
Assistant Director, SEC's Division of Enforcement