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From Securities Regulation Daily, April 24, 2014

Asset freeze ordered against Banco Santander official charged with insider trading

By Rodney F. Tonkovic, J.D.

A district court entered an asset freeze against a former adviser at Banco Santander, S.A. Cedric Cañas Maillard (Cañas) was charged with insider trading based on confidential information about a proposed acquisition for which his employer was acting as an advisor. The court granted the asset freeze after finding that the Commission showed a likelihood of success on the merits (SEC v. Maillard, April 23, 2014, Caproni, V.)

Background. Cañas, a citizen of Spain, was the technical cabinet adviser to the CEO of Banco Santander, S.A. During the course of his work, he learned that Santander had been asked to serve as a financial advisor and help underwrite a proposed acquisition of Potash Corporation by multinational mining company BHP Billiton. According to the Commission, Cañas purchased 30,000 Potash equity contracts-for-difference (CFDs) through his Internaxx, S.A. brokerage account. Cañas also informed a close friend, co-defendant Julio Marín Ugedo, about the proposed takeover.

Later, Potash publicly announced that it had received and rejected BHP’s unsolicited offer to purchase Potash's common stock. Following the announcement, Potash’s share prices drastically increased. According to the SEC, Cañas then liquidated his entire Potash CFD position after the stock price soared, realizing a net profit of over $900,000. Marín also sold his shares for a net profit of more than $40,000. For more background, please see our coverage of the SEC's complaint in the Securities Regulation Daily Wrap Up for July 30, 2013.

Jurisdiction. Cañas did not contest the SEC's insider trading claim, but instead argued that the court lacked jurisdiction over him. The court disagreed, finding first that the SEC presented evidence sufficient to allow the court to conclude that Cañas was a sophisticated investor who knew that his purchases and sales of CFDs were triggering corresponding purchases and sales by Internaxx on the NYSE. There was no real question, the court said, that Cañas availed himself of the market in New York.

Cañas then argued that the Supreme Court's decision in Morrison prevented the application of Exchange Act Section 10(b) to the alleged offenses. The court found Cañas’s transactions were transactions in connection with the purchase or sale of a security registered on a national securities exchange underMorrison. The court explained that the transactions required Internaxx to purchase the underlying security on the NYSE and that his losses or gains were calculated in U.S. dollars based on price fluctuations over the NYSE.

Cañas argued further that the CFDs were not listed on an American exchange. Calling this a "crabbed reading of Morrison," the court stated that while Cañas did not personally purchase a security listed on an American exchange, his purchase of CFDs directly caused Internaxx to purchase securities on the NYSE. The domestic market was therefore harmed by trades "directly and inextricably bound with Cañas's fraudulent conduct.

Asset freeze. Finally, the court granted a freeze of all assets related to Cañas’s purchases of Potash CFDs. The court noted that at this point in the case, Cañas has not contended that the SEC will not prevail on the merits. The amount frozen is the disgorgement amount and potential civil penalty, totaling $3,843,223.76.

The case is No. 13-cv-5299.

Attorneys: Frank D. Goldman for the SEC. Jose A. Lopez (Perkins Coie LLP) for Cedric Cañas Maillard.

MainStory: TopStory Enforcement FraudManipulation InternationalNews NewYorkNews

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