Late last month, the Securities and Exchange Commission (SEC) filed a complaint in the U.S. District Court for District of New Jersey against a hedge fund manager and his firm claiming insider trading.
The securities that were the subject of the insider trades were in three companies including Moldflow Corporation, Autodesk, Inc. and Salesforce.com, Inc. Others charged in the scheme, which is alleged to have reaped $3.9 million in ill-gotten gains, were friends and relatives of the manager.
The former director of business development for Autodesk is alleged to have tipped the hedge fund manager and another involved in thhe scheme that a tender offer was about to be made by the tech company for Moldflow. The company had not yet announced its intended merger with Moldflow at the time of the tip.
The SEC claims that the hedge fund manager "traded on the information in his personal accounts, his family members' accounts and the account of his hedge fund." He then furthered his alleged misconduct by suggesting to others that they also purchase stock in Autodesk's tender target. They did so, and are thus claimed to have used the insider information to benefit their personal accounts. In these transactions alone, $2.3 million is alleged to have been gained by these trades in Moldflow stock prior to Autodesk's acquisition.
In other related insider trading transactions, the SEC claims that Autodesk's earnings were also provided to the hedge fund manager prior to the company's public earnings announcement. And this information is said to have then been shared with others with the specific recommendation that friends and relatives not only short sell Autodesk stock, but also purchase put options on Autodesk stock.
One of the individuals involved in the insider trading was the former recruiting technology manager for Salesforce. He is alleged to have tipped the hedge fund manger with earnings information prior to the company's public announcement for the same quarter as the Autodesk earnings were tipped by the insider there.
The alleged illegal behavior continued with the hedge fund manager trading for gains in his personal accounts and those of his family within his own fund firm. Recommendations to purchase and to call options were made with regard to Salesforces' stock. The SEC alleges that all of this resulted in "illicit gains of nearly $500,000 from their trading in Salesforce securities."
The SEC's complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties. Two of the defendants have consented to final judgments in the case including disgorgement of ill-gotten gains and pre-judgment interest.
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