Securities Lawyer Blog

WIth the varied allegations that have been prevalent from regulators over the past year, we return to the previously more common claim of insider trading in a case out of Texas.

Earlier this week, the Securities and Exchange Commission (SEC) charged Reza Saleh, a Richardson, Texas resident, with insider trading.

These allegations relate to Mr. Saleh's activities prior to Dell Inc.'s tender offer for Perot Systems. The agency alleges that Mr. Saleh "made increasingly large purchases of Perot Systems call options contracts based on material, non-public information that he learned in the course of his employment with, or duties for, two Perot-related private companies and Perot Systems."

Allegedly, immediately after the tender offer he sold all call option contracts and gained about $8.6 million in illicit profits.

The SEC picked-up on this quite rapidly with the help of the Options Regulatory Surveillance Authority, that identified him as a suspicious trader. The SEC has expressed its appreciation to the ORSA for their assistance in the case thus far. When asked, he disclosed to a Perot director that he had knowledge of the impending transaction during the trading.

The SEC's announcement on this case noted that "[t]he overwhelming evidence in this case allowed the SEC to move quickly against the trader before he could spend the huge profits from his illegal trading," said Rose Romero, Director of the SEC's Fort Worth Regional Office. "The Commission is seeking a court order to freeze Saleh's assets."

The SEC claims that Saleh violated the Securities Exchange Act of 1934 anti-fraud provisions, including specific provisions that prohibit trading while in possession of material nonpublic information about tender offers. A co-holder of the brokerage accounts is also named as a relief defendant.

The agency's investigation is continuing. It has already sought an emergency asset freeze, a preliminary injunction and a final judgment permanently enjoining Mr. Saleh from future violations federal securities laws. The complaint also seeks an order that would require him to pay financial penalties and disgorge all the gains with prejudgment interest.

Related Web Resources

If you would like to learn more about regulations related to insider trading and related topics, please visit the SEC's website.

Continue reading "Perot No-No -- $8.6 million Insider Trading Allegations Against Employee" »

For over a year now, investors have had regulatory agency support getting their Auction Rate Securities (ARS) out of the deep freeze.

Recently, the Financial Industry Regulatory Authority (FINRA) announced a settlement with an additional three firms who sold these investments, only to have the auctions freeze-up in February 2008. FINRA has now settled with a total of 12 firms.

The dollar amounts are staggering. Investors have been guaranteed the return of $1.3 billion and the firms have been fined $3.2 million. In the most recent settlement, Northwestern Mutual Services, LLC, of Milwaukee was fined $200,000, City Securities Corporation of Indianapolis was fined $250,000 and Fifth Third Securities, Inc., of Cincinnati was fined $150,000.

The universal problem with the ARS investments appears to have been the way, and to whom, they were sold. FINRA's Executive Vice President and Chief of Enforcement, Susan L. Merrill, noted that the "failure of firms to adequately disclose the risks associated with auction rate securities left customers unprepared for the failure of the auction market last year and the resulting consequences."

Generally, the failures of firms who sold these securities involved marketing materials or communications with firm sales forces that did not inform internal personnel of the potential problems with liquidity with these investments. Investors often purchased these believing that they were similar to Certificates of Deposit and that their investments could be accessed on a regular basis in the event liquidity was needed.

That turned out to be wrong in theory and practice as the auctions completely dried-up in the financial crisis in early 2008 and investors were stuck holding frozen assets.

As part of this particular settlement and according to FINRA's announcement, the firms involved have agreed to participate in a "special FINRA-administered arbitration program to resolve investor claims for consequential damages - that is, damages investors may have suffered from their inability to access funds invested in ARS." This program includes expedited arbitration proceedings that will be paid for by the firms.

Related Web Resources

Detailed information on ARS procedures and background, for both investors and industry professionals, can be found on FINRA's website.

Continue reading "Thawing To Liquidity -- $128 Million in Auction Rate Securities Holdings Repurchased " »