SEC’s Atlanta office: Illegal overseas trading scheme nets $3.6 million


Investigators at the U.S. Securities and Exchange Commission’s Atlanta office said Tuesday that they obtained freezes on two overseas accounts holding more than $3.6 million in alleged illegal profits from insider trading.

The money, in two accounts in London and Singapore, stem from allegedly illegal profiteering on inside information that traders got ahead of SoftBank’s deal to buy Fortress Investment Group, a New York money management firm.

Such trading on “material” information typically known only to company executives and other insiders is a violation of federal securities laws. Such schemes can be as simple as an executive passing a illegal tip to his golf buddies, or involve conspiracies stretching around the globe.

The SEC said account freezes will ensure that the unknown traders, believed to be overseas, can’t remove any allegedly illegal profits before the agency completes its investigation.

“The detection and prosecution of insider trading continues to be a high priority in this office,” said Walter Jospin, director of the SEC’s regional office in Atlanta. The SEC said the “expedited investigation” is being handled by a team of six people in the Atlanta office. The SEC filed its complaint in federal district court in New Jersey on Friday.

The SEC said it detected suspicious trading activity when SoftBank, a Tokyo telecom giant that controls Sprint Corp. in the U.S., announced its $3.6 billion deal to buy Fortress after the U.S. stock markets closed on Feb. 14. In an all-cash deal, SoftBank offered $8.08 per share, a 30 percent premium over Fortress’ market value before the announcement.

But by then, according to the SEC, the traders had bought Fortress stock and securities known as “contracts for difference” that would allow them to make out-sized profits on changes in Fortress’ stock price.

Working through a brokerage account in Singapore, the traders had begun buying Fortress stock on the same day the deal was announced, about 30 minutes after Fortress’ board of directors got an email of draft resolutions to approve the deal, according to the SEC’s complaint.

The traders sold their Fortress stock one day after the deal was announced, making a profit of nearly $1.7 million.

Likewise, the SEC said in its complaint, traders working through the London account began buying the “contracts for difference” securities on Fortress stock, or CFDs, just before Feb. 12, when Fortress’s board initially expected to approve the deal. The traders bought more CFDs on Feb. 13 and Feb. 14, ahead of the deal’s announcement later that day, according to the SEC.

The traders sold most of their Fortress investment the next day, reaping a $1.9 million profit, the SEC said.



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