Randomly Noted

Some good quotes from Robert Khuzami, head of the Securities and Exchange Commission’s enforcement division, as he laid out how people associated with an “expert networking” or “matchmaking” firm allegedly shared inside information about some of the big companies that employed them with hedge fund employees.

Said Khuzami in a statement issued today: “Today we pull back the curtain and reveal that the only matching that was going on here was to match theft with greed.”

And lest anyone not understand what’s allegedly involved, Khuzami employed analogy to good use. He said: “These trusted employees chose to steal information that belonged not to them, but to the company and its shareholders. They lined their pockets with tens of thousands of dollars by trafficking in that stolen information in a manner that is not unlike an employee who drives to the loading dock late at night and fills the trunk of his car with valuable office equipment and sells it to his neighbor.”

One of the cases the Securities and Exchange Commission filed today against alleged insider traders just leaves you wondering where have people been the past few years. This is the case involving a Disney administrative assistant who apparently had access to press releases before they were distributed – and in particular, earnings releases. So, she agreed to pass them along to her boyfriend who ahead of time would contact 20 or more hedge funds to see if they were interested on trading on inside information.  He contacted them via anonymous letters. One of the funny things about the SEC press release on this is that it talks about how 20-plus hedge funds were sent the letter but how only several of them contacted the SEC. Hats off to those several but what about the others?

The SEC refers to this as a brazen insider trader case. I suppose one could find stronger words: maybe dumb? Glad the Feds nailed these guys but if you want a good read about “Amateur Hour Comes To Wall Street,” well, here it is. See the SEC complaint and press release by clicking here.

While it’s true that for many ad people the adage “all news is good news”  works as a way to keep a brand name out in front of people, you have to figure the folks at Macy’s aren’t crazy about this publicity.

As part of an insider trading case today, the SEC charged that one of the no-good-doers (alleged, of course), would send coded email messages to a fellow alleged no-good-doer. The tip about illegal stock buying opportunities was caught up in a code of whether gifts were bought at the Macy’s bridal registry. “Happy to talk about sales items,” one of the emails read.

Somehow the SEC saw through this – was in because that the half dozen or so people nabbed in the ring were Russian and it was presumed if they were dealing in bridal registrys it would be at Tiffany, not Macy’s?

Here’s the SEC complaint.

“My daughter is innocent and that is what you will be printing,” said Gloria Chiesi, Danielle Chiesi’s mother, after today’s U.S. District Court arraignment hearing at which Danielle pleaded not guilty to insider-trading charges. Mother Chiesi continued: “God borrowed my body and gave me this girl. She’s my angel.” Check out DJN colleague Kelly Nolan’s coverage.

Hewlett Packard became the latest tech company to put some of its cash to work today by offering to buy networking gear-maker 3 Com for $2.7 billion. There’s obviously an interesting H-P strategy story in all of this but what is more fascinating to me is what the headline on this blog item asks. Hours before the deal was announced, there was very unusual trading in the stock options of 3 Com. As Newswires reporter Tennille Tracy reports, a days work in 3 Com options results in a few hundred contracts traded daily. Today, there were close to 8,000 traded. What makes this kind of trading even more remarkable is that it happens against the backdrop of a very high profile federal investigation into hedge funds brokering inside information with a network of paid tipseters that seems to be fingering some pretty high profile players. Maybe just a coincidence but it doesn’t seem like it. Even if you innocently heard a rumor today about H-P and 3 Com, would you risk trading on it given what the Feds are up to? The more things change, the more they stay the same…

As distressing as some of the enforcement ‘misses’ by the Securities and Exchange Commission have been (read Madoff), it’s even more distressing to contemplate the semingly bottomless well of malfeasance in the securities industry.

The details of the latest insider trading charges revealed Thursday by prosecutors are shocking in the number of people involved and the reasonable deduction that if this alleged ring was stopped there likely are plenty more out there.

Robert S. Khuzami, who recently joined the SEC as the head of  enforcement, had some tough but true things to say about insider trading that apply to any kind of securities fraud. This quotes are from a prepared statement for Thursday’s press conference announcing the charges.

“We expose the apparent ease with which these Wall Street professionals, corp0rate insiders, analysts and lawyers disregarded the rules and their duties to clients and shareholders for kickbacks and easy profits.

“Their misconduct threatens to undermine confidence upon which our capital martkets depend.

“These men and women had obligations to their employers, their clients and our markets.”

That’s an interesting notion, an obligation to the markets themselves.

Check out the WSJ’s Deal Journal blog for “Sopranos”-quality details from the government’s criminal complaint against the alleged insider-trading suspects: Prepaid cellphones concealing allegedly illicit calls; bags of cash transported here and there; and a B-movie nickname, the “Greek.” Then there’s the remark from the U.S. Attorney’s press conference: one of the suspects was known as “Octopussy,” apparently because he had his arms in all sorts of shady dealings. At this point in the financial crisis we shouldn’t really be shocked by yet another revelation of alleged criminality and immorality in and around Wall Street (“Wall Street” being loosely defined as banks and funds of all stripes and in all venues, including the City of Manhattan.) But I find myself marveling at the chutzpah of this widening ring of alleged bad guys and gals – how on earth did they think they would get away with it? WSJ.com provides the Securities and Exchange Commission’s chart linking various suspects to one another. What’s not clear is whether this was a tightly managed ring or a case of Six Degrees of Separation between a couple dozen (or more) broadly unrelated people on the East and West coasts. Stay tuned!

The woman who has been identified as the informant in the Galleon hedge fund case appears to have had a separate run-in with the law in another case that involved Galleon.

MercuryNews.com reported earlier today that Roomy Khan, the 51-year-old informant, was convicted in 2002 on federal wire fraud charges for faxing to a Galleon employee confidential information about Intel while she worked at the high-tech company. She pleaded guilty in 2002 and was given a six-month sentence and paid a fine of $30,000. (click here for the MercuryNews.com story).

We know that the court papers relating to this case have been sealed by the court. And we know that Khan worked for Galleon sometime in the late 1990s. What we don’t know if is if that was before or after she worked for Intel.

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