By Erik Larson
(Bloomberg) --The handwritten notes a Bank of America Corp. technology consultant passed to his girlfriend weren’t expressions of love. They were stock tips for her father.
Daniel Rivas, 32, began writing the missives to James Moodhe, 60, in 2014, and they included dozens of illegal leaks about unannounced mergers and acquisitions that the older man traded on, prosecutors said Wednesday in an indictment outlining a sprawling insider-trading scheme.
Rivas and Moodhe, an assistant controller at a brokerage prosecutors didn’t identify, are now united in a different endeavor: cooperating with prosecutors in a criminal case against former friends who are also accused of trading on the leaks. Five other men allegedly benefited from Rivas’s information, including longtime Morgan Stanley employee Michael Siva. Those men -- friends of Rivas and Moodhe -- were arrested Wednesday in Florida, California and New Jersey, accused of participating in overlapping insider-trading rings in which they and others made about $5 million.
"As the romantic relationship between Rivas and the daughter progressed, so did the frequency with which Rivas and Moodhe spent time together," according to the indictment, which doesn’t name the daughter, who wasn’t charged in the case. "On dozens of occasions between 2014 and 2017, Rivas divulged inside information to Moodhe, orally and in writing."
The arrests are part of the largest insider-trading case in recent years and signal that some on Wall Street remain willing to trade on illicit information even after a years-long government crackdown that led to dozens of convictions.
“The defendants took advantage of an insider at an investment bank to make millions in illegal profits, trading more than 50 times in advance of confidential corporation information,” Acting U.S. Attorney Joon Kim in Manhattan said in a statement. “The defendants allegedly used code words and encrypted messages to try to avoid law enforcement detection.”
The five charged are Roberto Rodriguez, 32, of Miami Gardens, Florida; Siva, 55, of West Orange, New Jersey; Rodolfo Sablon, 37, of Miami, Florida; Jhonatan Zoquier, 33, of Englewood, New Jersey; and Jeffrey Rogiers, 33, of Oakland, California. Siva and Zoquier were released on bond after appearing in Manhattan federal court. Their lawyers declined to comment. The others are scheduled to appear in court later this week.
Rivas’s lawyer and Moodhe’s lawyer didn’t return calls seeking comment. Rivas and Moodhe have both pleaded guilty, prosecutors said.
"We fired Mr. Rivas in April and cooperated fully with the government’s investigation," Bill Halldin, a spokesman for BofA Merrill Lynch, said in an emailed statement.
Rivas, of Hasbrouck Heights, New Jersey, was hired by RBC Capital Markets after he was fired from Bank of America. RBC suspended him after learning of the allegations on Wednesday, bank spokeswoman Sanam Heidary said in an email.
The seven men were also sued on Wednesday by the Securities and Exchange Commission, which seeks the return of the profits plus civil penalties.
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.
He 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. The daughter worked at the same company as her father, and Moodhe would visit the couple on an almost-daily basis to pick her up for work, the U.S. said.
No Phone Calls
As the scheme developed, Rivas avoided calling on the phone, texting or emailing Moodhe, the U.S. said. Instead, he passed handwritten notes that included ticker symbols of the acquiring and target companies, the expected price and announcement date, and the bank’s role, the SEC said in its lawsuit.
The results were profitable. Moodhe made about $2 million over 2 1/2 years, the U.S. said. The first tip involved the planned acquisition of Covance Inc. by Laboratory Corporation of America Holdings on Nov. 3, 2014. Rivas allegedly viewed the computer record about the deal on Oct. 23, 2014, and several days later Moodhe bought 1,000 shares of Covance for $80,800, according to the indictment. When the deal was made public, Moodhe sold the shares and made more than $19,000, the U.S. said.
Moodhe passed Rivas’s information to his friend Siva, who then placed trades on behalf of his firm’s clients, realizing more than $880,000 in profits, according to the SEC. Siva also traded on his own behalf in at least two target firms, making more than $8,000, the SEC said.
Morgan Stanley said in a statement that it’s cooperating with authorities. “The alleged conduct is a gross violation of our internal policies and our company’s values," the bank said.
Rivas also gave tips to Zoquier, a friend in New Jersey who made $30,000 on the information, the U.S. said. Zoquier then gave the tips to his own friend, Rogiers, who made more than $50,000, according to the indictment. Rogiers, keeping the chain going, tipped former colleagues, who aren’t charged in the case. They made a total of more than $400,000, the U.S. said.
Rivas didn’t use paper notes with his other friends, Rodriguez and Sablon, who lived in Florida. Their alleged scheme, rooted in a plan concocted in Las Vegas to make extra cash, ultimately relied on self-destructing text messages and smartphone screen shots of brokerage accounts, the U.S. said. The two friends in Florida turned an initial investment of $100,000 into more than $2 million in just over a year, the SEC said.
The criminal case is U.S. v. Siva, 17-cr-00503, U.S. District Court, Southern District of New York (Manhattan).
--With assistance from Chris Dolmetsch.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, Paul Cox