Blotter, December 2009

SEC Nabs “the Octopussy”

The SEC charged a pair of New York lawyers with allegedly supplying inside information to six Wall Street traders and a proprietary trading firm.

The SEC complaint, filed in federal court in Manhattan, alleges that Arthur J. Cutillo, an attorney in the New York office of Ropes & Gray, had access to confidential information about at least four major proposed corporate transactions in which his firm represented certain acquirers. Through his friend and fellow attorney Jason Goldfarb, Cutillo passed along material, non-public information to Zvi Goffer, a proprietary trader at New York-based firm Schottenfeld Group.

The SEC alleges Goffer — also known as “the Octopussy” within the insider trading ring due to his reputation for being plugged into so many sources of inside information — then passed the tips to four traders at three different broker-dealer firms and Craig Drimal, another professional trader, who each then traded either for their own accounts or their firm's proprietary accounts. According to the complaint, Cutillo, Goldfarb, and Goffer used “disposable cell phones,” to exchange the inside information with tippees. After one of the announcements, Goffer destroyed the cell phone by “removing the SIM card, biting it, and breaking the phone in half, throwing away half of the phone and instructing his tippee to dispose of the other half.”

How about a Fraud Fee

The SEC charged New York City-based investment adviser Value Line Inc., its CEO, its former Chief Compliance Officer and its affiliated broker-dealer with defrauding the firm's family of mutual funds by charging over $24 million in bogus brokerage commissions on mutual fund trades funneled through Value Line's affiliated broker-dealer, Value Line Securities. Without admitting or denying the Commission's findings, Value Line and its affiliated b/d settled the charges by consenting to discontinue charging the bogus commissions and paying $45 million in penalties.

More Busted in Hedgie Trading Scheme

The SEC brought charges against 13 additional individuals and entities in the insider trading scheme conducted by hedge fund manager and billionaire Raj Rajaratnam and his firm, Galleon Management. Among those charged with providing tips to Rajaratnam in the SEC's amended complaint, filed in federal court in Manhattan, were three hedge fund managers, three professional traders at New York-based Schottenfeld Group, and a senior executive at Atheros Communications, a California-based developer of networking technologies.

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