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From Securities Regulation Daily, March 19, 2014

SEC charges broker and law firm clerk in serial insider trading scheme

By John Filar Atwood

The SEC charged stockbroker Vladimir Eydelman and law firm managing clerk Steven Metro with insider trading in connection with more than a dozen mergers or other transactions spanning a four-year period. Eydelman and Metro, who were linked through a mutual friend who acted as a middleman, realized illicit profits of $5.6 million as a result of the scheme, according to the Commission (SEC v. Eydelman, March 19, 2014).  

SEC’s allegations. The Commission claims that Metro, who works at Simpson Thacher & Bartlett in New York, obtained material nonpublic information about corporate clients involved in pending deals by accessing confidential documents in the law firm’s computer system. He tipped the middleman during in-person meetings at a coffee shop, and the middleman later met Eydelman, who was his stockbroker, at Grand Central Station in New York.

According to the SEC, the middleman tipped Eydelman, who was a registered representative at Oppenheimer and is now at Morgan Stanley, by showing him a post-it note or napkin with the relevant ticker symbol. Eydelman used the illicit tip to illegally trade on his own behalf as well as for family members, the middleman, and other customers. The middleman allocated a portion of his profits for eventual payment back to Metro in exchange for the inside information. Metro also personally traded in advance of at least two deals, the SEC claims.

Sirius/Liberty Media deal. The SEC’s complaint states that the scheme began in February 2009 at a bar in New York City when Metro met the middleman, and the middleman expressed concern about his holdings in Sirius XM Radio and his fear that the company could go bankrupt. Metro divulged that Liberty Media Corp. planned to invest more than $500 million in Sirius and said he obtained this information by viewing documents at the law firm where he worked.

As a result of that conversation, the middleman called Eydelman and told him to buy additional shares of Sirius. After public announcement of the deal, the middleman told Metro that he had set aside $7,000 of his profits for Metro as a “thank you” for the information. The SEC alleges that Metro told the middleman to leave the money in his brokerage account and to invest it on Metro’s behalf based on confidential information that he planned to provide in the future. 

According to the SEC, Metro tipped and Eydelman traded on inside information for about 12 more companies over a four-year period. Eydelman also traded on inside information in the accounts of more than 50 of his brokerage customers. He earned substantial commissions as a result of this trading, and received bonuses from his employers based on his performance driven in large part by the profits garnered through the insider trading scheme.  The middleman’s agreement with Metro resulted in more than $168,000 being apportioned to Metro as his share of profits from the insider trading scheme in addition to his profits from personally trading in advance of at least two transactions.

Disgorgement and penalties. The SEC charged Metro and Eydelman with violating 1934 Act Secs. 10(b) and 14(e) and Rules 10b-5 and 14e-3, as well as 1933 Act Sec.17(a). A press release notes that the Commission is seeking a final judgment ordering Metro and Eydelman to pay disgorgement of their ill-gotten gains plus prejudgment interest and penalties, and permanent injunctions from future violations of these sections of the federal securities laws.

Attorneys: Stephan J. Schlegelmilch for the SEC.

Companies: Oppenheimer; Morgan Stanley; Sirius XM Radio; Liberty Media Corp.

MainStory: TopStory FraudManipulation Enforcement

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