Insider trading – it’s the new black.
The SEC on Wednesday accused a former vice president and investment banker at Lazard Freres and a former associate at private equity firm TPG Capital of “serial insider trading”.
The civil complaint names Adnan Zaman, who worked at Lazard’s San Francisco and New York offices, and Vinyak Gowrish, an alumni of TPG’s San Francisco and Minneapolis offices.
The SEC accused Zaman and Gowrish of illegally tipping “nonpublic merger and acquisition information” to Pascal Vaghar and Sameer Khoury. The latter traded stock and options on the basis of the tipped information and realised total profits of nearly $500,000, the SEC claimed.
The tipped information included intel that TPG was TPG was in negotiations to acquire Sabre Holdings, TXU, and Alliance Data, according to the SEC.
The regulator futher alleged that Zaman “misappropriated and illegally tipped material, nonpublic information that Lazard clients were in negotiations to acquire webMethods, Inc. and Myogen, Inc”.
In exchange for the tips, Gowrish allegedly received cash kickbacks from Vaghar, while Zaman allegedly received cash, free rent and “other items of value” from both Vaghar and Khoury, according to the complaint.
These kickbacks amounted to about $70,000, the SEC claimed.
According to the SEC, Vaghar is currently unemployed; Mr Khoury is a mortgage broker. Zaman and Gowrish have a long-standing friendship: they attended high school and college together and were fraternity brothers.
Here’s some cloak-and-dagger detail from the complaint:
In an attempt to keep the ring secret, some of the defendents took steps to avoid detection. For example, information was exchanged during in-person meetings, on yellow sticky notes and through coded text messages, and Zaman instructed Vaghar to trade in small quantities so as not to draw regulatory scrutiny. To avoid detection and any type of paper trail when providing cash kickbacks, Vaghar made checks payable to himself or to “cash”.
(What, no bat phones? No Octopussy?)
Zaman, Vaghar, and Khoury have offered to settle to full injunctive relief and disgorgement, and Zaman has also agreed to be permanently barred from associating with any broker or dealer, the SEC said in a statement.
Related links:
The narrow divide between pinstripe and prison stripe – FT
SEC manages to win an insider trading case – FT Alphaville
Analysts, traders, hedgies, attorneys and other Galleon-accused – FT Alphaville
Raj Rajaratnam denies allegations of insider trading – FT Alphaville