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SEC Charges Family With $3.7 Million Insider Trading Scheme
The Securities and Exchange Commission today announced the filing of a civil action in federal district court in New York, New York involving a rampant insider trading scheme which generated more than $3.7 million in profits and losses avoided for a family and certain friends over a five year period. From at least 2001 through 2005, seven individuals, including lawyers and accountants, participated in a scheme to trade in the stock and option contracts of Taro Pharmaceuticals Industries, Ltd. ("Taro"), an Israeli-based publicly traded pharmaceutical company, ahead of eight earnings announcements and five FDA approval announcements. In the later stages of the scheme, certain of the defendants broadened the scheme by trading on information stolen from Pricewaterhouse Coopers LLP ("PwC") and Ernst & Young, LLP concerning two possible mergers.
In its complaint, the Commission alleged that Zvi Rosenthal, a Vice President at Taro, abused his position at Taro by systematically stealing material, nonpublic information concerning 13 separate company announcements, including earnings results and pending generic drug approvals by the Food and Drug Administration. Zvi then traded on the information and passed it on to his family members who then traded in Taro stock and options. Typically, Zvi provided information to his son, Amir Rosenthal who traded in personal accounts he controlled, and in the account of the family- owned and controlled hedge fund, Aragon Partners, LP. Amir also tipped his brothers, Oren Rosenthal and Ayal Rosenthal; his father-in-law, Bahram Delshad ("Delshad"); his best friend, David Heyman ("Heyman"); and his work supervisor, Young Kim ("Kim"), with information he received from Zvi, and each of them traded. The complaint further alleges that in its later stages, certain of the defendants broadened the scheme to include trading on nonpublic information stolen from entities other than Taro. On at least two occasions, Ayal and Heyman misappropriated material, nonpublic information concerning impending mergers from their respective employers, PwC and E, and tipped Amir with the information. Amir then traded on it. Amir also tipped Kim with the information from Ayal and Heyman, and Kim traded on the information. Read more at sec.gov.
Variation Margin: Payment made on a daily or intraday basis
Variation Margin: Payment made on a daily or intraday basis by a clearing member to the clearing organization based on adverse price movement in positions carried by the clearing member, calculated separately for customer and proprietary positions.
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Definition:
Named after Charles Ponzi, a man with a remarkable criminal career in the early 20th century, the term has been used to describe pyramid arrangements whereby an enterprise makes payments to investors from the proceeds of a later investment rather than from profits of the underlying business venture, as the investors expected, and gives investors the impression that a legitimate profit-making business or investment opportunity exists, where in fact it is a mere fiction.
Systemic Risk
Definition:
The risk that a default by one market participant will have repercussions on other participants due to the interlocking nature of financial markets. For example, Customer A’s default in X market may affect Intermediary B’s ability to fulfill its obligations in Markets X, Y, and Z.
Bear Spread
Definition:
(1) A strategy involving the simultaneous purchase and sale of options of the same class and expiration date, but different strike prices. In a bear spread, the option that is purchased has a lower delta than the option that is bought. For example, in a call bear spread, the purchased option has a higher exercise price than the option that is sold. Also called Bear Vertical Spread. (2) The simultaneous purchase and sale of two futures contracts in the same or related commodities with the intention of profiting from a decline in prices but at the same time limiting the potential loss if this expectation does not materialize.
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