Washington, D.C., April 30, 2009 (LAWFUEL) – The Securities and Exchange Commission today charged a former Citigroup investment banker for repeatedly tipping his brother about upcoming merger deals in an insider trading scheme that involved friends and family throughout Northern California and the Midwest and reaped more than $6 million in illicit profits.
The SEC alleges that Maher Kara, a former director in Citigroup Global Markets’ investment banking division in New York, repeatedly told his brother Michael Kara of Walnut Creek, Calif., about upcoming deals involving Citigroup’s health care industry clients. The SEC further alleges that Michael Kara, in addition to buying stock and options in target companies that were the subject of the Citigroup deals, leaked the information to a network of friends and family who also traded in advance of the deals. The SEC has charged the Kara brothers and six others in the case.
“Insider trading exposes publicly-traded companies and their shareholders to serious harm, and damages the integrity of the markets,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “In this case, an investment bank professional violated the trust of his employer and the clients who relied on the bank’s confidential advice.”
Marc J. Fagel, Director of the SEC’s San Francisco Regional Office, added, “We are charging not only the person who stole the information from his employer, but also those who received and then traded on that information. These individuals netted millions of dollars in illegal windfall profits by trading on confidential information they knew was obtained improperly.”
According to the SEC’s complaint, filed in federal district court in San Francisco, Michael Kara is a self-employed environmental clean-up consultant who traded in at least 20 companies that were involved in confidential transactions pending in the Citigroup health care investment banking group where Maher Kara worked. In many cases, Michael Kara also tipped friends and family members in California and Illinois.
The participants in the scheme made their biggest profits trading in the stock and options of San Diego, Calif.-based medical testing company Biosite, Inc., less than three days before a March 25, 2007, announcement that it would be acquired. According to the SEC’s complaint, Maher Kara tipped his brother on March 22 about the confidential merger negotiations, and less than 15 minutes later Michael Kara began acquiring a large volume of Biosite stock and short-term call options. That same day, Michael Kara began calling friends and family members to pass along the tip, and they too began buying Biosite securities. After the acquisition of Biosite was publicly disclosed days later, the stock price jumped over 50 percent. Michael Kara made illegal profits of more than $1.2 million, while his six tippees together made nearly $4 million.
In addition to the Kara brothers, the SEC also charged:
· Emile Jilwan of Pleasanton, Calif. (Michael Kara’s friend), who made $2.3 million on Biosite trades.
· Zahi Haddad of Stockton, Calif. (Michael and Maher Kara’s uncle), who made $82,000.
· Bassam Salman of Orland Park, Ill. (brother of Maher Kara’s wife), who passed the information to his brother-in-law.
· Karim Bayyouk of Livonia, Mich. (Salman’s brother-in-law), who made $950,000 (some of which he returned to Salman).
· Joseph Azar of Pleasanton, Calif. (Michael Kara’s friend), who made $118,000.
· Nasser Mardini of Stockton, Calif. (Michael Kara’s friend), who traded in others’ accounts and tipped another person for profits of $291,000.
The SEC’s complaint alleges that Maher Kara, who is now residing in San Carlos, Calif., also tipped his brother about a planned March 2006 acquisition of Andrx Corporation, a Florida drug manufacturer. Michael Kara allegedly made nearly $400,000 in illegal profits trading on the tip, and passed the information to Jilwan, Haddad, Azar, and Salman (who then tipped Bayyouk). Together, they made an additional $750,000 when the Andrx acquisition was announced.
In a parallel criminal action, the U.S. Attorney’s Office for the Northern District of California and the Federal Bureau of Investigation today announced the criminal indictment of Maher Kara, Michael Kara, and Emile Jilwan.
Two of Michael Kara’s tippees, Nasser Mardini and Joseph Azar, have agreed to settle the SEC’s charges without admitting or denying the allegations. Mardini has agreed to repay illegal profits, and Azar has agreed to repay illegal profits and pay a penalty. In its non-settled enforcement action against the remaining defendants, the SEC seeks disgorgement of illegal profits, financial penalties, and other relief.
The SEC acknowledges the assistance of the Chicago Board Options Exchange, the Federal Bureau of Investigation, and the U.S. Attorney’s Office for the Northern District of California in this matter. The SEC also acknowledges the assistance provided by Citigroup during the investigation.