The SEC moves against another alleged insider-trading ring
Filed under: Company News, Investing
I like what the Securities & Exchange Commission is doing this days. It cracked down on insider trading at Galleon Holdings, the former $3.7 billion hedge fund whose boss, Raj Rajaratnam, is out on $100 million bail. But the SEC hasn't stopped there: Yesterday it announced an indictment against a former chief financial officer of ValueAct Capital.
You may recall that several years ago, ValueAct Capital cleverly bought a huge chunk of Martha Stewart Living Omnimedia (MSO) after Stewart was tossed in jail in 2004 for lying to investigators about her late 2001 sale of stock in biotech company ImClone Systems -- prosecutors suspected she sold based on insider information. ValueAct ended up owning 22 percent of MSO and sold most of its stake in 2005 after the stock rebounded, picking up a nice profit in the process.
Now, the tables have turned. The Dow Jones Newswires reported on Friday that the SEC indicted Ronald Yee, the former CFO of ValueAct, for allegedly tipping off his brother-in-law Chen Tang, who worked for an unidentified private equity firm, that ValueAct would acquire Acxiom in 2007. That led to a $6 million profit for Tang, three of his friends and his brother. Yee reportedly didn't trade on this information, and the SEC has told ValueAct that the firm isn't a target of the investigation.
Tang also made $1.2 million by getting inside information that Tempur-Pedic (TPX) would post disappointing earnings last year. He passed that info to three friends, and they shorted the stock before the earnings announcement. Tempur-Pedic's stock fell 37 percent after the earnings news became public.
Like the Galleon case, the one involving ValueAct former CFO Yee and Chen Tang suggests that insider trading has been rampant in the high-stakes hedge-fund world. I hope the SEC keeps turning up the heat on those who profit from inside info and that the result will be a more level playing field for investors who follow the rules.
Peter Cohan is a management consultant, Babson professor and author of nine books, including Capital Rising (due in June 2010). Follow him on Twitter. He has no financial interest in the securities mentioned.
Why is Oprah going to cable? Hint: It's nothing to get teary about
Kisses from Hershey: Candymaker may court Cadbury with $17 billion bid
D-Day for Harry Reid: Can he wrangle 60 votes for Senate health reform bill?
Reader Comments (Page 1 of 1)
10-31-2009 @ 11:59PM
ken reed said...
This shows why you should stay out of the stock market. Put your money into something that gives you a fair shake, like the lotto.
Reply
11-01-2009 @ 12:48AM
marcuss said...
high risk retirement fund.
11-01-2009 @ 7:40PM
John said...
Somehow they overlooked Hillary's very fortunate cow deal where she, as an inexperienced trader, made a quick killing in cattle futures. Of course it had nothing to do with the brokerage allocating wins and losses as it deemed fit.
11-01-2009 @ 7:39PM
John said...
Somehow they overlooked Hillary's very fortunate cow deal where she, as an inexperienced trader, made a quick killing in cattle futures. Of course it had nothing to do with the brokerage allocating wins and losses as it deemed fit.
11-01-2009 @ 12:54AM
marcuss said...
im thinking about ending my 401k dedution and cashing in my retirement.
ive heard about the obama401k where the government seizes your reitrement and the government will distribute as it sees fit.
i would prefer to become debt free. it would make sense in these troubled times.
Reply
11-01-2009 @ 1:34AM
Mike Young said...
Outlaw hedge funds, abolish margins-let the real market seek it's own path-so our savings can exist without speculation-build a real economy.
Thanks,
Mike
Reply
11-01-2009 @ 3:34AM
MADDAT52 said...
All the gamblers will just build there businesses in other countries were speculation is not under attack.
Reply
11-01-2009 @ 6:10AM
jake said...
It is not enough to send a token few people to prison to restore investor confidence in the markets. The highly compensated hedge fund kingpins and driven by GREED so prison does not scare them.
Reply
11-01-2009 @ 6:34AM
twm said...
There was a news release in Bloomburg a few days ago that stated that Galleon had paid Goldman and another Investment bank over 250 million dollars for "edge" insider information. Since that news release about the governments buddy Goldman, there has been complete silence. I guess the government or Goldman told the news to shut up. These big investment banks are stealing our tax money and using it to steal our retirement trading ahead of the market with their high speed computer models. This is nothing but a theft which makes Madoff look like a small fry.
Reply
11-01-2009 @ 8:23AM
Harley_D said...
Finally, the government is making part of big business pay for their crimes.The problem is all the crime out there that will go on punished because the SEC will never find it. We are sourounded in crime on Wall Street and nothing has been done about it. Now, the government wants to show it can do something becuase Madoff is making so much fun at them at their expense. Keep it up Burnie.
Reply
11-01-2009 @ 8:12AM
keen observer said...
"Stewart was indicted for insider trading in the stock of biotech company Imclone in June, 2003. Stewart ultimately went to jail." The gloating state propagandist Peter Cohan is certainly a big-time liar in misrepresenting that "Stewart was indicted for insider trading." She was never charged with "insider trading" so it was impossible for her to be "indicted for insider trading." Further, "Stewart ultimately went to jail" because she was railroaded on bogus charges that were enabled, aided, abetted and facilitated by grossly incompetent legal representation . Cohan is obviously devoid of any veracity.
Reply
11-01-2009 @ 9:24AM
Terry said...
Crude inventories are rising, gas inventories are rising, so why does the price at the pump keep going up?
Every American need’s to call, write, fax and email their representative ASAP and ask these same questions! Where will the world be when the oil industry has all the money? The current world depression will not heal as long as fuel cost continues to escalate. The cost of fuel is the corner stone of any recovery because it affects every aspect of the world’s economy. It is so simple, just get off oil and start keeping our $25 Billion a month that we spend on foreign oil here at home to rebuild our economy. Our government has way too much oil money in it and Congress needs term limits. Where is the investigation into the oil and gas industry?
Reply
11-01-2009 @ 10:40AM
davie said...
So,can someone tell me why it is that OUR members of congress are not barred from using their position to invest in stocks? That's right folks,if a member knows before the general public that let's say GE is getting a big defense contract they are actually allowed to invest in that stock with no repurcussions. No wonder they all leave as millionaires...
Reply
11-01-2009 @ 11:00AM
sgentilejr said...
The SEC, EPA, FBI etc. are fast to go after American citizens and American companies that defraud or pollute our nation, however hundreds of thousands of new homes were built inside the USA between 2002 and 2008 that were constructed using Made in China drywall. That drywall has since been found to give off high levels of sulphide gases that are highly toxic to people, pets and to copper pipes and copper wiring inside those homes. Everything (drywall, copper pipes, copper wiring in appliances) has to now be replaced at a cost of between $50,00 and $100,000 per home. Yet the EPA and other consumer safety agencies all look the other way when the Chinese companies that made the highly toxic drywall deny any and all responsibility.Shame on our government, shame on our politicians and shame on our agencies such as the EPA for looking the other way when Chinese companies violate our laws and they do nothing to stop toxic made in China products at the ports of entry into the USA from being distributed and sold here.
Reply
11-01-2009 @ 2:10PM
dennis said...
Put your money into something safe...like your mattress..
Reply
11-01-2009 @ 2:12PM
greg said...
For the life of me, I cannot understand why people continue to buy inferior and/or dangerous products made in China. The U. S. has some semblance of regulation in place to protect consumers. I would be hard pressed to buy anything like tires, building products, steel, concrete, baby products, or anything else that would pose a health/safety hazard if improperly manufactured. Look at the lead paint on kids' toys, tainted baby formula or a host of other examples. Just because it is cheaper (are you paying attention, Wal-Mart?) does not make it better. I would rather pay more for an American or European made product than 90% of the junk coming out of China.
Reply
11-01-2009 @ 6:53PM
George said...
The answer is simple. When Christmas shopping this year look and see where it was made. If it wasn't made in the U.S. put it back on the shelf. Eventually they will start to get the idea that we should but American goods.
11-01-2009 @ 7:06PM
Glen said...
When will Barney Frank and Chris Dodd be charged?
Reply
11-02-2009 @ 8:45PM
keen observer said...
There was no evidence of Martha Stewart's "lying to investigators." Not one single word spoken by her or any of the federal agents was recorded in a verbatim transcript or in sworn testimony.
Martha Stewart never had any "insider information" on ImClone. Only two months earlier, she made the decision to sell ALL of her ImClone stock in a tender offer from Bristol Myers, which was oversubscribed. This decision to sell ALL of her ImClone stock was based on sound investment management principles. Clearly, the reasons for the remnant sale of 3,928 shares of ImClone stock resided in her decision relating to the tender offer from Bristol Myers. Over seven million ImClone shares were traded that day; Martha Stewart owed nobody any explanation for her legal stock sale; why she sold the stock was nobody's business, including the "investigators."
Reply