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SEC Charges Wall Street Lawyers and Traders in $20 Million Insider Trading Scheme
FOR IMMEDIATE RELEASE
2009-236
Washington, D.C., Nov. 5, 2009 — The Securities and Exchange Commission today charged a pair of lawyers for tipping inside information in exchange for kickbacks as well as six Wall Street traders and a proprietary trading firm involved in a $20 million insider trading scheme.
The SEC alleges that Arthur J. Cutillo, an attorney in the New York office of international law firm Ropes & Gray LLP, had access to confidential information about at least four major proposed corporate transactions in which his firm's clients participated. Through his friend and fellow attorney Jason Goldfarb, Cutillo tipped this inside information to Zvi Goffer, a proprietary trader at New York-based firm Schottenfeld Group. Goffer promptly tipped four traders at three different broker-dealer firms and another professional trader Craig Drimal, who each then traded either for their own account or their firm's proprietary accounts.
Goffer was known as "the Octopussy" within the insider trading ring due to his reputation for having his arms in so many sources of inside information. Cutillo, Goldfarb, and Goffer at times used disposable cell phones in an attempt to conceal the scheme. For example, prior to the announcement of one acquisition, Goffer gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled "you" and "me." After the announcement, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half, throwing away half of the phone and instructing his tippee to dispose of the other half.
"When Wall Street professionals or others exploit inside information for an illegal tip-and-trade binge, they undermine the level playing field that is fundamental to our capital markets," said Robert Khuzami, Director of the SEC's Division of Enforcement. "These defendants thought the rules that apply to all investors did not apply to them, but the one rule they cannot avoid is the rule of law. Now they face the prospect of financial penalties, industry bars, and even jail time for their indiscretions."
Scott W. Friestad, Associate Director in the SEC's Enforcement Division, added, "Today's action highlights the apparent ease with which far too many lawyers, hedge funds and Wall Street traders are willing to break the law to obtain a bag of cash, a trading advantage or other perceived benefit. It is fundamentally unfair for these individuals to profit at the expense of honest investors and compromise the integrity of our markets."
The SEC's complaint, filed in federal court in Manhattan, charges in addition to Cutillo, Goldfarb, Goffer and Drimal:
Schottenfeld Group LLC Emanuel Goffer of New York, N.Y. — formerly a registered representative at the broker-dealer Spectrum Trading LLC, and currently associated with the broker-dealer Echotrade. Michael A. Kimelman of Larchmont, N.Y. — formerly a trader at Lighthouse Financial Group LLC, an investment bank and broker-dealer, and currently a registered representative at Echotrade. David Plate of New York, N.Y. — formerly a registered representative at Schottenfeld and currently a registered representative at the broker-dealer G-2 Trading LLC. Gautham Shankar of New Canaan, Conn. — formerly a registered representative at Schottenfeld.
According to the SEC's complaint, Cutillo and Goldfarb tipped material, non-public information to Zvi Goffer about the following four proposed corporate acquisitions or bids in which Ropes & Gray represented certain acquirers:
- May 17, 2007 announced acquisition of Alliance Data Systems Corp. by The Blackstone Group
- June 4, 2007 announced acquisition of Avaya by Silver Lake Partners and TPG LLP
- September 28, 2007 announced acquisition of 3Com by Bain Capital, LLC and Huawei Technologies
- November 29, 2007 announced acquisition of Axcan by TPG LLP
The SEC's complaint further alleges that Zvi Goffer's downstream tippees also included two hedge funds that collectively made more than $10 million in profits trading on his tips.
The SEC's complaint charges each of the defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of civil monetary penalties.
The SEC thanks the U.S. Attorney's Office and the Federal Bureau of Investigation for their cooperation and assistance in connection with this matter.
The SEC's investigation is continuing.
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For more information about this enforcement action, contact:
Scott Friestad
Associate Director and Special Advisor to the Director
Division of Enforcement
(202) 551-4962
Robert Kaplan
Assistant Director
Division of Enforcement
(202) 551-4969
http://www.sec.gov/news/press/2009/2009-236.htm
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