Insider Trading Ring Prosecutions
1. United States v. Rajat Gupta (2012 – New York)
Facts: Rajat Gupta, former director at Goldman Sachs and Procter & Gamble, leaked confidential boardroom information to hedge fund manager Raj Rajaratnam. The information included earnings reports and confidential corporate strategies.
Prosecution: Charged with securities fraud (15 U.S.C. §§ 78j(b), 78ff) and wire fraud (18 U.S.C. § 1343). The prosecution argued Gupta provided non-public information that allowed Rajaratnam’s fund to make profitable trades.
Outcome: Gupta was convicted and sentenced to 2 years in prison, fined $5 million, and ordered to pay $6.8 million in restitution.
Significance: Highlighted that corporate insiders providing confidential information to traders can be prosecuted even if they do not personally trade.
2. United States v. Raj Rajaratnam (2011 – New York)
Facts: Rajaratnam, founder of the Galleon Group hedge fund, orchestrated one of the largest insider trading rings in U.S. history. He received tips from corporate insiders like Gupta and others about earnings and acquisitions.
Prosecution: Charged with conspiracy and securities fraud (15 U.S.C. §§ 78j(b), 78ff; 18 U.S.C. § 371), as he coordinated with multiple insiders to trade on material non-public information.
Outcome: Convicted on 14 counts of securities fraud and conspiracy, sentenced to 11 years in prison, fined $10 million, and required to pay $53.8 million in restitution.
Significance: Demonstrated that large-scale insider trading rings involving multiple parties are aggressively prosecuted under federal securities law.
3. United States v. Mathew Martoma (2014 – New York)
Facts: Mathew Martoma, a portfolio manager at SAC Capital, received confidential information about clinical trial results of an Alzheimer’s drug from a consulting physician. Trades based on this information generated over $276 million in profits and avoided losses.
Prosecution: Charged with securities fraud and conspiracy (15 U.S.C. §§ 78j(b), 78ff; 18 U.S.C. § 371) for using insider information to gain unfair trading advantages.
Outcome: Martoma was convicted and sentenced to 9 years in federal prison, ordered to forfeit $9.3 million and pay restitution of $275 million.
Significance: Reinforced that insider trading prosecutions can target fund managers who receive tips from industry insiders.
4. United States v. Anthony Chiasson (2014 – New York)
Facts: Chiasson, a hedge fund manager at Level Global Investors, received confidential merger and acquisition information from analysts and insiders. He used this non-public information to profit on trades in several tech companies.
Prosecution: Charged with securities fraud, wire fraud, and conspiracy (15 U.S.C. §§ 78j(b), 78ff; 18 U.S.C. § 1343, 371).
Outcome: Convicted, sentenced to 6 months in prison, and fined $750,000.
Significance: Showed that insider trading rings involving multiple tip sources, even in high-tech sectors, can result in federal prosecution.
5. United States v. Michael Steinberg (2014 – New York)
Facts: Steinberg, managing director at SAC Capital, received non-public clinical trial results from an insider physician. He traded ahead of public announcements, generating millions in profits for the fund.
Prosecution: Charged with conspiracy and securities fraud (15 U.S.C. §§ 78j(b), 78ff; 18 U.S.C. § 371) for coordinating with other fund managers and insiders to exploit material non-public information.
Outcome: Convicted and sentenced to 3.5 years in prison, ordered to pay $9.4 million in restitution.
Significance: Highlighted that insider trading rings often involve collaboration among multiple fund managers and industry insiders.
6. United States v. Mathew Kluger (2012 – New York)
Facts: Kluger, a corporate lawyer, provided confidential merger and acquisition information to hedge fund managers for personal gain. The trades resulted in significant profits based on non-public information.
Prosecution: Charged with securities fraud, wire fraud, and conspiracy (15 U.S.C. §§ 78j(b), 78ff; 18 U.S.C. § 1343, 371) for using insider knowledge unlawfully.
Outcome: Kluger was convicted and sentenced to 6 years in prison and required to pay restitution exceeding $2.4 million.
Significance: Demonstrated that professional advisors and lawyers who leak confidential information are liable in insider trading rings.
Key Legal Takeaways
Primary Laws Used:
Securities Fraud (15 U.S.C. §§ 78j(b), 78ff) – prohibits trading on material non-public information.
Wire & Mail Fraud (18 U.S.C. §§ 1341, 1343) – applied when communications are interstate or electronic.
Conspiracy (18 U.S.C. § 371) – applies when multiple individuals coordinate insider trading schemes.
Common Patterns in Insider Trading Rings:
Collaboration between corporate insiders, fund managers, and outside advisors.
Trading on confidential financial, merger, or clinical trial information.
Use of offshore accounts and complex trading to conceal profits.
Typical Penalties:
Prison: 2–11 years depending on scale.
Restitution and forfeiture: Millions to hundreds of millions of dollars.
Fines and permanent bans from trading or investment management roles.
Significance:
Insider trading rings are high-priority targets for the SEC and DOJ.
Both tip-givers (insiders) and tip-receivers (fund managers) can be prosecuted.
Large-scale schemes often involve multiple conspirators across industries and states.
RELATED Blog
0 comments