By Erik Larson
(Bloomberg) --A longtime Morgan Stanley broker and financial adviser pleaded not guilty to trading on secret tips about pending mergers and acquisitions leaked by a Bank of America Corp. consultant.
Michael Siva, 55, got the information from a close friend, James Moodhe, whose daughter was dating the consultant at the center of the case, Daniel Rivas, prosecutors said in an August indictment. In a statement, Morgan Stanley described Siva as a former wealth management employee and didn’t provide details about his apparent departure from the company.
Siva, of West Orange, New Jersey, is one of seven people charged in the alleged scheme. Rivas and Moodhe have pleaded guilty and are cooperating with the government. Prosecutors said Rivas gave the hand-written tips to his girlfriend to give to her father, who then passed them on to Siva using code phrases on the phone or by reading them aloud at secret meetings.
Wearing a dark blue suit and saying little, Siva entered his plea on Tuesday in a nearly empty federal courtroom in Manhattan. U.S. District Judge Alison Nathan extended the former broker’s bail and set a three-week trial for September 2018.
The others charged are friends and associates of Rivas and Moodhe, who created several "tipping chains" that benefited different groups, according to prosecutors. Rivas’s girlfriend wasn’t charged.
Assistant U.S. Attorney Andrea Griswold told the judge that the government would provide "voluminous" trading records, text messages and emails to prove its case. Siva’s lawyer, Paul Shechtman, declined to comment after the hearing.
Moodhe passed Rivas’s inside information to Siva from at least 2015 to April 2017, so Siva could use it to execute profitable trades for himself and his clients, including Moodhe, prosecutors said. Their in-person meetings, at diners outside New York City, were intended to avoid detection, according to the U.S.
"During these meetings, Moodhe read from pieces of paper provided to him by Rivas, which contained detailed information about confidential impending deals, including ticker symbols, deal values and expected announcement dates," prosecutors said.
Rivas was a project consultant in Bank of America’s capital markets technology group in New York. As a member of the team responsible for supporting the bank’s computer system, he had access to a deal-tracking system that contained data about corporate transactions, including impending mergers, acquisitions and tender offers, according to the U.S.
BofA Merrill Lynch said in an emailed statement in August that it fired Rivas and is cooperating with the government.
Siva and Moodhe made a total of more than $3 million by trading before and after deals were announced, while Siva also made thousands of dollars on commissions, the U.S. said.
One of Siva’s most profitable trades was a purchase of 30,000 shares of ZS Pharma on behalf of Moodhe and Siva’s clients, just before it was announced in 2015 that AstraZeneca Plc was buying the company for $2 billion. The men sold all their shares after the announcement and made a total of almost $600,000, prosecutors said.
In another set of allegedly corrupt trades, Siva and Moodhe in 2016 each purchased thousands of shares of St. Jude Medical Inc. just before its impending $25 billion acquisition by Abbott Laboratories. The men, neither of whom had invested in St. Jude Medical before, sold all their shares after the deal was publicly announced in April 2016, garnering a total of more than $450,000, the U.S. said.
Siva and Moodhe had become friends after Rivas started dating Moodhe’s daughter in 2013, the U.S. said. Their plan began unfolding when Rivas learned from his girlfriend that her father actively traded stocks and options on behalf of himself and his family, and the opportunities to share information increased once Rivas and the daughter moved in together in 2015, the U.S. said.
During an initial court appearance in August Griswold told the judge that Siva posed a risk of fleeing given that the charges against him involve a yearslong securities fraud that garnered more than $1 million in illicit profits. The judge required Siva to post a $500,000 bond secured by $50,000 cash or property.
The case is U.S. v. Siva, 17-cr-00503, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Erik Larson in New York at [email protected] To contact the editors responsible for this story: David Glovin at [email protected] Joe Schneider, Peter Blumberg