Insider Trading

Describes motivation process for creativity with emphasis on intrinsic motivation by Corey K Katir

Today, the Federal Securities Law Blog takes a look back at the last 30 days in the federal securities world in a regular feature which appears on approximately the 15th of each month. The last month saw our Blog turn five years old, but more importantly, the SEC continued to provide guidance relating to the Jumpstart Our Business Startups Act (“JOBS Act”), and there were a host of issues in insider trading cases and cases involving companies in China. These and other matters from the last month are discussed in greater detail after the jump.

The JOBS Act.

As discussed last month, on April 5, 2012, President Obama signed into law the JOBS Act. On April 16, 2012, the SEC Division of Corporation Finance issued additional Frequently Asked Questions to provide guidance on the implementation and application of the Act, addressing questions of general applicability under Title I of the JOBS Act (as discussed here). Title I provides scaled disclosure provisions for emerging growth companies and allows emerging growth companies to use test-the-waters communications with Qualified Institutional Buyers and institutional accredited investors. CorpFin supplemented that guidance on May 3, 2012 (as discussed here). The FAQs clarify how an issuer can qualify as an emerging growth company, applicable dates for qualification and registration, and various reporting and disclosure requirements.

Information on EDGAR.

As discussed here, the Commission announced that beginning on April 19, 2012, the SEC staff will begin to republish Commission orders pursuant to Exchange Act Section 12(j) revoking a company’s Exchange Act registration and Commission stop orders pursuant to § 8 of the 1933 Act on EDGAR. Although these orders are currently posted on the SEC’s website as administrative orders, they have not been posted on EDGAR. The SEC staff will begin with the most recently issued orders and go backwards through 2004. New orders will be published on EDGAR when issued going forward.

Commission Improvements in Economic Analysis in Rulemaking.

On Tuesday, April 17, 2012, SEC Chairman Mary Schapiro testified before the House Subcommittee on TARP, Financial Services and Bailouts about the steps the SEC has taken and is taking to strengthen our economic analyses in the rulemaking process. Chairman Schapiro acknowledged that “economic analysis is a critical element of the SEC’s rulemaking obligation,” and that “the unprecedented rulemaking burden generated by passage of the Dodd-Frank Act has tested the resources and analytical capabilities of the agency.” However, she explained, the Commission has “learned a great deal and our rulemaking processes have continued to evolve.” As discussed here, she told the Subcommittee that the SEC’s “new guidance reflects many of the current best practices, which the agency will refine in the future as necessary to ensure high quality economic analysis in its rulemaking.”

Insider Trading Issues.

News in the last thirty days provided some excellent insight into the SEC’s efforts to combat insider trading. Devin Leonard’s fine profile in BusinessWeek of Sanjay Wadhwa, a deputy chief of the SEC’s market abuse group, in took a close look at the insider trading investigation of Raj Rajaratnam (and the many leads that investigation has yielded) and was instructive in highlighting how the SEC overcomes disadvantages and what it has done to improve its investigative efforts in recent years. The article, discussed here, focused on the investigation into the Galleon Group and early key discoveries such as the remarkably similar trading by Mr. Rajaratnam and others and his instant messages with Roomy Khan (a witness who ultimately cooperated with prosecutors). As the article points out, the Galleon investigation has led to 56 arrests and 48 convictions, including the conviction of Mr. Rajaratnam, his subsequent sentencing to 11 years in prison and the SEC’s civil judgment against him for over $92 million. For those who follow matters investigated and litigated by the SEC, the BusinessWeek article provides a rare insight into how the SEC performs those tasks and what changes have occurred in their methodology in recent times.

The investigation which ensnared Mr. Rajaratnam continues and the Commission received a positive result on a procedural issues in its litigation against him and Rajat Gupta. Judge Jed Rakoff denied a motion to compel by the two defendants, who were seeking an order that the SEC produce documents concerning settlement negotiations between the Commission and cooperating witnesses. As discussed here, Judge Rakoff rejected the defendants’ argument that the information from the negotiations could be used to prove bias, stating that “[t]he best evidence of bias in a cooperator’s testimony comes from the actual agreement he struck with the SEC, not from his lawyer’s attempt to get him a good deal.”

Another positive story arising from insider trading investigations was the May 3, 2012 announcement from DOJ that it “has returned approximately $44 million to victims of [the] securities fraud scheme” involving of Joseph Nacchio, the former CEO of Qwest Communications International Inc. Following a trial, a jury convicted Mr. Nacchio of 19 counts of insider trading on April 19, 2007 based on events which took place between 1999 and 2002. As discussed here, the long process of litigation in the District Court and the Appellate Court meant that those who invested in Qwest waited ten years to see any recovery (even though Mr. Nacchio paid the forfeiture amount in 2007). However, ultimately $44 million in forfeited funds is “being returned to 112,210 victims who incurred losses on Qwest securities purchased during the fraud scheme.” The distribution of funds to victims was authorized and overseen by the Department of Justice’s Victim Asset Recovery Program in the Criminal Division’s Asset Forfeiture and Money Laundering Section.

The SEC also achieved success in a pair of cases discussed here involving families that engaged in insider trading. In both cases, the insider and the tippees settled with the Commission, paying far more than the profit they earned. In one case, the SEC filed a case against Mohammed Mark Amin, a Hollywood movie producer (“the producer or executive producer for more than 75 Hollywood movies including Frida, Eve’s Bayou, and four movies in the Leprechaun series,” according to the Commission) and his brother, cousin, and three other friends and business partners for insider trading in the shares of DuPont Fabros Technology Inc., a company in which Mr. Amin served on the board of directors. Those who traded earned approximately $618,000, but the six defendants settled by paying nearly $2 million. The same week, the Commission filed a case against Angela Milliard, a former paralegal at Semitool Inc., a semiconductor company in Montana, and her father for trading on inside information about the 2009 acquisition of the company. The daughter and father (who earned $67,000) agreed to settle the SEC’s case by paying more than $175,000.

Whistleblower Unmasked.

An April 25, 2012 article by Scott Patterson and Jenny Strasburg in the Wall Street Journal revealed that, during an investigation of Pipeline Trading Systems LLC, an SEC attorney showed a witness a notebook which included handwritten notes from a whistleblower, and the witness recognized the handwriting and was able to tell his employers who the whistleblower was. As discussed here, the Whistleblower spoke to the Journal and agreed to be identified (and provided some insight on how he was treated both before and after he blew the whistle on Pipeline’s activities). The Journal also published a letter from a letter from George S. Canellos, the Director of the SEC’s New York regional office, which stated that the SEC did not expose the whistleblower and stated that the agency’s use of notebooks with his handwriting was not “inadvertent” and not a “gaffe.”

Chinese Entities.

The last thirty days saw developments in several cases involving Chinese companies, including a case filed yesterday against China Natural Gas, Inc. and its former CEO Qinan Ji for having the corporation make loans to Mr. Ji’s family and failing to disclose the transactions.

In another case against a Chinese company discussed here, on April 23, 2012, the SEC filed a case against SinoTech Energy Limited, an oil field services company, with intentionally misleading investors about the value of its assets and its use of $120 million in IPO proceeds. The SEC also charged CEO Guoqiang Xin and former CFO Boxun Zhang for their involvement in the fraud. The Complaint, filed in federal court in Louisiana, alleges that the company’s IPO registration statement misled investors about the acquisition and value of a key asset lateral hydraulic drilling units (“LHD Units”) that are central to its business. In addition, the SEC charged Qingzeng Liu, SinoTech’s chairman and controlling shareholder, with misappropriating at least $40 million of SinoTech’s cash between June, 2011 and August 2011. The SEC’s complaint seeks permanent injunctive relief against all defendants, and disgorgement of ill-gotten gains by SinoTech and Mr. Liu, as well as civil penalties against the three individuals. The Commission also director-and-officer bars against each of the individual defendants.

As discussed here, on April 25, 2012, DOJ announced that Garth Peterson, a former managing director for Morgan Stanley’s real estate business in China, pled guilty in federal court in Brooklyn, New York for participating in a conspiracy to evade the internal accounting controls which the company was required to maintain under the FCPA. The SEC also announced that it brought and settled a case against Mr. Peterson. However, in announcing the case against Mr. Peterson, DOJ stated that it was not bringing any enforcement action against Morgan Stanley related to this conduct (noting that “Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials”).

On May 9, 2012, the SEC announced that it has filed an Administrative Proceeding against Deloitte Touche Tohmatsu CPA Ltd. (“D&T Shanghai”) for its refusal to provide the agency with audit work papers in connection with the Commission’s investigation of the firm’s client for alleged fraud. The Administrative Proceeding was filed while the Commission is in the midst of a subpoena enforcement action against the same accounting firm, that is scheduled to be heard in federal court in early June. The new matter is latest proceeding in the dispute over whether the SEC can compel the Chinese accounting firm to respond to its subpoena – the penalty which D&T Shanghai could face for its failure to comply is censure or being denied the ability to appear before the Commission.

Class Action Settlement.

In the In re: Lehman Bros. Sec. and ERISA Litig., Judge Lewis Kaplan issued a May 3, 2012 Memorandum and Order directing certain defendants (five officers, who had already allowed a retired Judge specially retained to assist in the parties’ discussions to review information regarding their assets), to provide that same financial information to the Court for an in camera review. As discussed here, Judge Kaplan will review that information in order to make a determination regarding the fairness a $90 million settlement (which was to be paid by insurance coverage) between class action plaintiffs and the directors and officers.

The SEC filed and settled two cases this week in which insiders tipped family members about events at publicly traded companies. In both cases, the insider and the tippees settled with the Commission, paying far more than any profit earned.

• On Tuesday, May 8, 2012, the SEC filed a case against Mohammed Mark Amin, a Hollywood movie producer, and his brother, cousin, and three other friends and business partners for insider trading in the shares of DuPont Fabros Technology Inc., a company in which Mr. Amin served on the board of directors. Those who traded earned approximately $618,000, but the six defendants settled by paying nearly $2 million.

• On Monday, May 7, 2012, the Commission filed a case against Angela Milliard, a former paralegal at Semitool Inc., a semiconductor company in Montana, and her father for trading on inside information about the 2009 acquisition of the company. The daughter and father (who earned $67,000) agreed to settle the SEC’s case by paying more than $175,000.

The Hollywood Executive. The SEC described Mr. Amin as “a motion picture executive,” who was “the producer or executive producer for more than 75 Hollywood movies including Frida, Eve’s Bayou, and four movies in the Leprechaun series.” The SEC claims that, prior to a company board meeting, Mr. Amin learned about three new leases that DuPont Fabros was negotiating and three loans it was obtaining to develop new facilities. Mr. Amin learned this information when he received materials for a special board meeting to approve the three new loans.

Mr. Amin tipped his brother, his cousin, and a long-time friend and business manager. Those three traded on the basis of the inside information, and his brother tipped two friends and business associates. The group made more than $618,000 in insider trading profits when the company’s share price rose 36 % after an earnings release disclosed the development of these new facilities.

The six defendants agreed to settle the SEC’s charges by collectively paying almost $2 million (consisting of disgorgement of $618,497, prejudgment interest of $78,000, and penalties totaling $1,236,994). They also agreed to the entry of a final judgment permanently enjoining them from violating Section 10(b) of the Exchange Act and Rule 10b-5. Mr. Amin agreed to a 10-year bar from serving as an officer or director of a public company.

The Montana Paralegal. In 2009, Ms. Milliard learned that Semitool and Applied Materials Inc., a Silicon Valley company, had entered into advanced merger negotiations, which would result in a the tender offer for nearly 30 % more than Semitool’s price at the time. The Commission alleged that she wired money to her boyfriend’s brokerage account and used it to purchase Semitool shares. She also provided her father Kenneth Milliard with information about the negotiations. He then purchased shares and tipped his sons, who also acquired shares. After Applied’s acquisition of Semitool was announced, the Milliards sold their shares, earning profits of more than $67,000.

The daughter and father agreed to settle with the Commission by paying more than $175,000. Ms. Milliard will disgorge her profits of $20,355, and pay prejudgment interest of $1,614 and a penalty of $54,022. Her father will disgorge both his and his sons’ profits of $47,805, and pay prejudgment interest of $3,765 and a penalty of $47,805.

Prosecutors and the SEC work quite vigorously to recover ill-gotten gains from those who have committed securities fraud, with the ultimate goal of compensating investors. A conviction in a criminal case or judgment in civil case brought by the SEC may result in a large number, like the $53.8 million forfeiture judgment in the criminal case and the $92 million civil judgment against Raj Rajaratnam (discussed here), but that is only the first step. A May 3, 2012 Press Release from DOJ provides some insight into this process (and how long it may take) – following a 2007 conviction of Joseph Nacchio, the former CEO of Qwest Communications International Inc., based on events which took place between 1999 and 2002, DOJ announced that it “has returned approximately $44 million to victims of [that] securities fraud scheme.”

DOJ prosecuted Mr. Nacchio for acts between 1999 and 2002 when he announced unrealistic revenue projections for Qwest and subsequently caused Qwest to issue false and misleading statements to the public about the company’s financial condition. When those irregularities were discovered, Qwest stock, which had traded as high as $60 per share, fell to approximately $1 per share.

Following a spring 2007 trial, a jury convicted Mr. Nacchio of 19 counts of insider trading on April 19, 2007. Chief Judge Edward W. Nottingham originally sentenced him to 72 months in prison, fined him $19 million, and ordered him to forfeit $52,007,545.47. Mr. Nacchio tendered the forfeiture amount to the custodian of seized property. The $19 million fine was deposited into the registry of the Court in an interest bearing account in August 2007, and was ultimately paid to a fund for victims of crime.

Mr. Nacchio appealed and on March 17, 2008, a three-Judge panel reversed his conviction. However, on February 25, 2009, the Tenth Circuit Court of Appeals issued a new opinion en banc, confirming Mr. Nacchio’s conviction, but vacating the sentence and remanding the case to the District Court for further proceedings. U.S. v. Nacchio, 573 F.3d 1062 (10th Cir. 2009).

Following the Tenth Circuit’s decision, Mr. Nacchio and the Government stipulated to a new forfeiture amount of $44,632,464.38 on January 12, 2010. Then, on June 24, 2010, Mr. Nacchio was resentenced, this time by Judge Marcia S. Krieger, who sentenced him to 70 months in prison and left the fine of $19 million in place. Mr. Nacchio appealed that decision, but agreed to dismiss the appeal in February 2011.

DOJ announced on Thursday that the $44 million in forfeited funds “are being returned to 112,210 victims who incurred losses on Qwest securities purchased during the fraud scheme.” The distribution of funds to victims was authorized and overseen by the Department of Justice’s Victim Asset Recovery Program in the Criminal Division’s Asset Forfeiture and Money Laundering Section. Gilardi & Co. LLC, a class action claims Administrator was appointed as Administrator.

Claimants established their eligibility by participating in the private securities class action, In re Qwest Communications International Inc. Sec. Litig., No. 01-cv-1451 (D. Colo.) and/or the US Securities and Exchange Commission Fair Fund, SEC v. Qwest Communications International Inc., No. 04-D-2179 (D. Colo.). The private securities class comprised “all persons or entities that purchased or otherwise acquired [Qwest shares] from May 24, 1999, through July 28, 2002.” The eligibility requirements for participation in the distribution were the same as the eligibility requirements for participation in the securities class action. On September 28, 2011 Gilardi & Co. LLC, the appointed Administrator, notified claimants of their eligibility status.

Assistant Attorney General Lanny Breuer stated “we are fulfilling a central objective of the Criminal Division’s Victim Asset Recovery Program and returning those funds to the victims of Mr. Nacchio’s crime.”

Those who invested in Qwest will have waited ten years to see this recovery – and, in this case, the defendant, Mr. Nacchio paid the forfeiture amount in 2007. In many cases, the defendant does not willingly pay may a forfeiture award and DOJ is forced to search for and secure assets, which would have made DOJ’s job more difficult and taken longer than the years in Mr. Nacchio’s case.

In a Memorandum Order entered on May 1, 2012, Judge Jed Rakoff formally denied a motion to compel by Rajat Gupta and Raj Rajaratnam, who were seeking an order that the SEC produce documents concerning settlement negotiations between the Commission and cooperating witnesses. In an April 11, 2012 telephone conference, Judge Rakoff tentatively ruled in the Commission’s favor, but allowed the parties to submit letter briefs on the issue. In the Memorandum Order, Judge Rakoff confirmed his tentative ruling, rejecting the defendants’ argument that the information from the negotiations could be used to prove bias, stating that “[t]he best evidence of bias in a cooperator’s testimony comes from the actual agreement he struck with the SEC, not from his lawyer’s attempt to get him a good deal.”

In the past fourteen months, the litigation between Mr. Gupta, the former Managing Director of McKinsey & Company and board member at Goldman Sachs and Procter & Gamble, and the Commission has been remarkably active. From the outset, when the SEC brought an Administrative Proceeding against him alleging that he engaged in an insider trading scheme by providing nonpublic material information to Mr. Rajaratnam of Galleon Management, Mr. Gupta has argued that he should be able to take discovery to defend himself in Court. Mr. Gupta and the SEC agreed to the dismissal of the Administrative Proceeding and a related case in August, 2011 (as discussed here). By October 2011, both the SEC and the U.S. Attorney’s Office for the Southern District of New York filed charges against Mr. Gupta (with the Commission also naming Mr. Rajaratnam, as well) (described here).

As they had planned, the attorneys for Mr. Gupta have raised discovery issues. During the factual investigation that preceded the two cases, Assistant U.S. Attorneys from the Southern District of New York and an attorney from the SEC conducted joint interviews of 44 witnesses. Mr. Gupta’s attorneys filed motions in both the civil and criminal cases to seek materials regarding those interviews. On March 26, 2012, Judge Rakoff issued an Opinion and Order in the two cases (discussed here), granting in part a Motion to Compel and ordering the SEC to turn over to the U.S. Attorney’s Office materials relating to the 44 witnesses and ordered the prosecutors to review those memoranda and promptly turn over to the defense any material under Brady v. Maryland, 373 U.S. 83 (1963) (material exculpatory evidence to the defense – including evidence that could allow the defense to impeach the credibility of a prosecution witness).  With respect to the motion in the civil case, Judge Rakoff found that Mr. Gupta could not meet the burden of showing a “substantial need” for the SEC documents sufficient to overcome the attorney work product doctrine (except for the Brady material in the SEC’s notes and memoranda).

In the most recent discovery dispute, Messrs. Gupta and Rajaratnam requested the Commission to produce documents concerning settlement negotiations between the SEC and cooperating witnesses, including tax returns or other financial statements provided by the cooperators to the SEC during negotiations. They argued that the documents were relevant to probing the bias of the cooperators expected to testify against them. The SEC objected, pointing out that the final settlement agreements themselves would satisfy defendants’ interest in materials relating to bias.

Judge Rakoff held that Messrs. Gupta and Rajaratnam failed to demonstrate “that the settlement negotiations are relevant to proving bias.” Instead, the Court held, “what is relevant are the actual cooperation agreements themselves. The otherwise protected negotiations that led to the agreements have very limited, if any, additional probative value.” Judge Rakoff that the SEC did not have any Wells submissions or statements from the cooperating witnesses. In any event, the Judge noted:

Attorneys stake out adversarial positions in negotiations and engage in “puffing and posturing” in their attempt to obtain the best deal.  But these posturings have only indirect and attenuated relevance, at best, to anything bearing on proof of their clients’ bias.   

Judge Rakoff also rejected defendants’ request for financial information from the cooperators, because he did not see how it was relevant to bias.  “the cource of any bias in a cooperator’s testimony would be the ‘break’ the cooperator received from the the SEC in exchange for the cooperator’s testimony, something that is readily apparent from comparing the complaint to the final agreement.” 

An April 19, 2012 article by Devin Leonard of BusinessWeek profiles Sanjay Wadhwa, currently a deputy chief of the SEC’s market abuse group. The article takes a close look at the insider trading investigation of Raj Rajaratnam (and the many leads that investigation has yielded). Although many bloggers point out situations where the SEC or prosecutors are criticized (this blog included, in entries such as here and here), the BusinessWeek article, entitled “The SEC: Outmanned, Outgunned and On a Roll,” is instructive in highlighting how the SEC overcomes disadvantages and what it has done to improve its investigative efforts in recent years.

The article focuses on the investigation into the Galleon Group (including a May 2007 subpoena which yielded 4 million pages of documents, hundreds of thousands e-mails and 50,000 instant messages). Those documents yielded key discoveries such as the remarkably similar trading by Mr. Rajaratnam and his younger brother Rengan (which led the SEC to examine Mr. Rajaratnam more closely), and instant messages between Mr. Rajaratnam and Roomy Khan (a witness who ultimately cooperated with prosecutors). As the article points out, the Galleon investigation has led to 56 arrests and 48 convictions, including the conviction of Mr. Rajaratnam, his subsequent sentencing to 11 years in prison and the SEC’s civil judgment against him for over $92 million.

The article emphasizes a number of the bureaucratic challenges SEC staff members like Mr. Wadhwa faced, as well as detailing how things have changed in recent years (particularly with the appointments of Mary Schapiro and Robert Khuzami). For example, the article describes the “unfathomable bureaucratic iceberg” which existed previously, that, for example, required multiple levels of review to have a subpoena issued. However, now an attorney within the Division of Enforcement can act immediately to get a subpoena issued, without going through layers of review.

The article also emphasizes the SEC’s interaction with criminal prosecutors and the different powers they each have. For example, the criminal prosecution of Mr. Rajaratnam featured evidence from wiretaps, but the SEC is not permitted to use them. Mr. Wadhwa questioned that policy, saying: “… the U.S. Fish and Wildlife Service has access to wiretaps and the SEC doesn’t? And somehow you expect us to oversee Wall Street?”

Ultimately, the Commission moves slowly at times, can be an advantage, according to the article: “As an investigatory method, this translates into the staff collecting as much information as possible – phone records, trading records, lists of people at public companies who possessed confidential information – and sequestering themselves until they figure out if they have anything.”

For those who follow matters investigated and litigated by the SEC, the BusinessWeek article provides a rare insight into how the SEC performs those tasks and what changes have occurred in their methodology in recent times.

What can CIOs (and other firm leaders) do to protect confidential client data from thieves – who are on the payroll? On the June edition of Law Technology Now, host Monica Bay is joined by Tam Harbert, author of Law Technology Newsa June cover story, “Catch Me If You Can.” They discuss how BigLaw is reacting in the wake of the latest insider trading scandal involving three top firms – and the dilemma faced by firms that want to protect data while providing an open exchange of ideas and collaboration by firm attorneys.

This is the debut of Securities Docket Radio on the Legal Talk Network with host Bruce Carton, columnist at Compliance Week. Bruce welcomes Sanjay Wadhwa, Deputy Chief of the new Market Abuse Unit in the Division of Enforcement at the U.S. Securities and Exchange Commission, to discuss the new unit and investigations involving insider trading, specialist misconduct, offering fraud, and improper activities at hedge funds. Bruce and Sanjay also discuss the significant reorganization of the Division of Enforcement, and look inside the recent insider trading action brought against hedge fund giant Galleon, and the successful Reebok insider trading investigation.

The Securities and Exchange Commission is aggressively probing the financial world in the wake of the meltdown on Wall Street last fall. For the first time, the SEC filed an insider trading lawsuit involving the purchase of a credit default swap based on confidential, nonpublic material information. In-House Legal host, Paul D. Boynton welcomes Attorney David B. Bernsohn of Duane Morris LLP to help explain the underpinnings of the SECas case and the legal issues it raises.

legalweek

The two lawyers charged with insider trading by the Financial Services Authority (FSA) have been committed to stand trial in Southwark Crown Court after a hearing in Westminster yesterday (22 September). The contested hearing at Westminster Magistrates Court saw district judge Caroline Tubbs remand former Dorsey & Whitney corporate partner Andrew Rimmington and former McDermott Will & Emery corporate partner Michael McFall on unconditional bail to appear at Southwark on 28 October. Peter King, the former financial director of Neutec Pharma, has also been remanded until the same date.

legalweek

The first hearing has taken place in the case against two lawyers accused of insider trading by the Financial Services Authority, marking the fifth criminal prosecution for insider trading brought by the regulatory body in the last 18 months. Former Dorsey & Whitney corporate partner Andrew Rimmington and former McDermott Will & Emery partner Michael McFall – along with the former financial director of Neutec Pharma, Peter King – have been charged with insider dealing relating to Novartis’s 2006 takeover of Neutec.

Recently, President Obama signed the STOCK Act, ensuring that members of Congress who did insider trading would be guilty of a federal crime.

The STOCK Act — or Stop Trading on Congressional Knowledge Act — was designed to prevent members of the House and Senate from profiting from knowledge that came from working on committees that dealt with certain businesses — knowledge that was not available to the general public. Normally, profiting from insider knowledge about a company’s profits, or other financial information, is considered insider trading and is a white collar crime. But it might not shock anyone to know that Congressmen were able to profit without consequences.

Congressmen like Representative Spencer Bachus of Alabama. In 2008, while the economy was crumbling and Congress was readying a $700 billion bailout, Bachus traded on insider information more than three dozen times. Bachus is now chairman of the House Financial Services Committee and claims that he did nothing improper.

That’s because it wasn’t improper then. Not until Congress was embarrassed by an expose on 60 Minutes, which mentioned several names in connection with insider trading. Public outrage ensued, and members of Congress rushed to redeem themselves. The STOCK Act will allow the public to see more of government officials’ financial transactions. The Act requires that any public report of new transactions of more than $1,000 be posted online — either 30 days after the individual was notified of a transaction in his or her account, or 45 days after the transaction. The new law applies not only to Congressmen and their staff, but also to the president, vice president, cabinet members, and 28,000 other senior government officials who already must file public disclosures. The House of Representatives already posts disclosure information over the Internet, but the Senate requires those who seek the data to come to a Senate office.

As icing on the cake, the law also blocks bonuses to Fannie Mae (FNMA) and Freddie Mac (FMCC) executives while each company remains under government conservatorship.

Part of the University of Minnesota Law School’s Thirty-Third Annual Summer Program of Continuing Legal Education Seminars, May 25 – June 8, 2012, this (two-part) program will examine recent developments in federal and state securities laws from the vantage point of litigation and enforcement. Topics include the large number of insider trading enforcement actions and criminal prosecutions in the past two years based on novel theories of liability, the Stop Insider Trading on Congressional Kno…

Part of the University of Minnesota Law School’s Thirty-Third Annual Summer Program of Continuing Legal Education Seminars, May 25 – June 8, 2012, this (two-part) program will examine recent developments in federal and state securities laws from the vantage point of litigation and enforcement. Topics include the large number of insider trading enforcement actions and criminal prosecutions in the past two years based on novel theories of liability, the Stop Insider Trading on Congressional Kno…

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