SEC Charges Tipper of Confidential Information to S.A.C. Capital Portfolio Manager

The Securities and Exchange Commission today charged the tipper of confidential information to a S.A.C. Capital portfolio manager who has been charged with insider trading.

The SEC today amended its complaint against Richard Lee, who was charged last week, to additionally charge Sandeep Aggarwal, a sell-side analyst who tipped Lee in advance of a July 2009 public announcement about an Internet search engine partnership between Microsoft and Yahoo.  Lee purchased large amounts of Yahoo stock in the S.A.C. Capital hedge fund that he managed as well as in his personal trading account on the basis of the inside information.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Aggarwal, who lives in India but recently returned to the U.S.

“Rather than rely on legitimate research methods, Aggarwal obtained confidential information from a close friend at Microsoft and passed it along to Lee knowing that he would likely trade on it,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “As a sell-side analyst, Aggarwal knew the rules and yet he broke them, which is why he joins the growing ranks of those held accountable by the SEC for insider trading.”

The SEC alleges that Aggarwal learned confidential details about the significant progress of the Microsoft-Yahoo negotiations from his close friend at Microsoft on July 9, 2009, and he tipped Lee with the information during a telephone call the following day.  When the information was reported in the media almost a week later, Yahoo’s stock price rose approximately 4 percent.  S.A.C. Capital and Lee reaped substantial profits from the Yahoo shares that he purchased after speaking to Aggarwal.

According to the SEC’s amended complaint filed in federal court in Manhattan, Aggarwal covered both Microsoft and Yahoo for his research firm and regularly received periodic updates from his inside source at Microsoft.  Upon learning that Microsoft and Yahoo were potentially within two weeks of finalizing a deal, Aggarwal shared very specific details with Lee.  Aggarwal assured him that the information came from a close friend at Microsoft who was reliable and accurate.

The SEC’s amended complaint charges Aggarwal and Lee with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The amended complaint seeks a final judgment ordering Aggarwal and Lee to pay disgorgement of ill-gotten gains plus prejudgment interest and financial penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws.

The SEC’s investigation, which is continuing, has been conducted by Thomas Smith, Michael Holland, and Joseph Sansone of the Enforcement Division’s Market Abuse Unit in New York as well as Melissa Coppola and Jordan Baker in the New York Regional Office.  The team was assisted at various points during the investigation by Timothy Casey of the New York Regional Office, Patrick McCluskey and Kay Lee of the Market Abuse Unit in Philadelphia, and Daniel Koster of the Philadelphia Regional Office.  The case has been supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.