What’s this? Has the SEC managed to successfully prosecute someone for insider trading?
Looks like it, according to Reuters:
Federal securities regulators won an insider trading case when a jury in Boston ruled that a former Fidelity employee illegally profited from trading stocks that the mutual fund giant was buying for itself.
The jury in U.S. District Court in Boston found that David Donovan engaged in insider trading in Covad Communications Group Inc by giving his mother tips about nonpublic information about the company, the Securities and Exchange Commission said on Tuesday.
The SEC had charged that Donovan had obtained confidential information from Fidelity’s internal order database which showed that the mutual fund giant was buying a big chunk of the San Jose, California-based technology company.
The jury’s decision could not come at a better time for the regulator, which is in the midst of what promises to be a hotly-contested battle with Raj Rajaratnam, billionaire founder of the Galleon hedge fund group, over allegations of insider trading.
Mr Rajaratnam on Tuesday roundly denied all of the SEC’s allegations, and accused the regulator of playing fast and loose with the facts.
As the FT reported:
[Mr Rajarathnam's lawyers] claim that investigators who were trying to get permission for the wiretaps did not bring to the court’s attention that “the SEC, under the guise of an investigation of another unrelated hedge fund,” had already interviewed witnesses, including Mr Rajaratnam, about the conduct alleged in the current complaint.
Galleon had also given the SEC “tens of thousands of pages of documents,” as requested, his lawyers wrote.
Galleon aside, prosecutors’ ability to persuade a jury that the Fidelity trader’s behaviour constituted insider trading suggests that they learnt a thing a or two from the US v Cioffi and Tannin debacle.
Still, the SEC shouldn’t be patting itself on the back just yet: in the Fidelity case, the jury found Donovan’s co-defendant, David Hinkle of Texas, not liable for insider trading.
Related links:
Securities and Exchange Commission v. David K. Donovan, Jr. and David R. Hinkle – SEC press release
Dear derivatives traders: the SEC is watching you – FT Alphaville
Another blow for the SEC – FT Alphaville
Judge 3, SEC 0 in Bank of America/Merrill case – FT Alphaville