Washington, D.C., Dec. 18, 2008 (LAWFUEL) – The Securities and Exchange Commission today charged seven individuals and two companies involved in an insider trading ring, alleging that Matthew Devlin, a former registered representative at Lehman Brothers, Inc. in New York City, traded on and tipped his clients and friends with confidential, nonpublic information about 13 impending corporate transactions. Some of Devlin’s clients and friends, three of whom worked in the securities or legal professions, tipped others who also traded in the securities of the companies involved in the transactions.
According to the SEC’s complaint, Devlin got the inside information from his wife, a partner in the New York City office of an international public relations firm working on the deals. Because the inside information was valuable, some of the traders referred to Devlin and his wife as the “golden goose.” The SEC’s complaint further alleges that Devlin was rewarded with cash and luxury items for providing inside information, including a widescreen TV, a leather jacket, and Porsche driving lessons.
The SEC alleges that the illicit trading occurred from at least March 2004 through July 2008, and yielded more than $4.8 million in profits. Related criminal charges by the U.S. Attorney’s Office for the Southern District of New York were unsealed today against some of the defendants named in the SEC’s complaint.
“The Commission is unwavering in its determination to pursue illegal insider trading by securities professionals, lawyers, and others,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “Today’s enforcement action is another example of the exemplary working relationships among the SEC, criminal authorities, FINRA and other self-regulatory organizations.”
Antonia Chion, Associate Director of the SEC’s Division of Enforcement, added, “As alleged in our complaint, many of the defendants took steps to evade detection. This case demonstrates the SEC’s ongoing commitment to pursuing sophisticated insider trading schemes.”
The SEC’s complaint alleges that although many of the defendants had accounts with Lehman, they often attempted to avoid detection by trading in the securities of the target companies in numerous accounts that were not associated with Lehman or Devlin. To further conceal their illicit trading, at least two of the defendants sold off some of the shares they had purchased based on inside information prior to public announcements of the deals. In addition, Devlin and one of his tippees arranged to buy shares on Devlin’s behalf so Devlin could profit from the nonpublic information but evade scrutiny. When this tippee’s name appeared on a watch list, Devlin and the tippee agreed that Devlin would stop providing him inside information.
The SEC’s complaint alleges that, based on the information provided by Devlin, the defendants variously purchased the common stock or options of the following public companies: InVision Technologies, Inc.; Eon Labs, Inc.; Mylan, Inc.; Abgenix, Inc.; Aztar Corporation; Veritas, DGC, Inc.; Mercantile Bankshares Corporation; Alcan, Inc.; Ventana Medical Systems, Inc.; Pharmion Corporation; Take-Two Interactive Software, Inc.; Anheuser-Busch, Inc.; and Rohm and Haas Company. At the time that Devlin tipped the other defendants about these companies, each company was confidentially engaged in a significant transaction that involved a merger, tender offer, or stock repurchase.
The SEC’s complaint, which also charges three relief defendants, contains the following allegations:
Bouchareb Trading Group
Devlin tipped Jamil Bouchareb, his friend and client at Lehman, about 12 of the deals. Bouchareb, a Miami Beach, Fla.-based trader, traded in his own accounts and tipped his friends and business partners. He also caused his parents to trade.
Bouchareb’s tippees include his friend and business partner, Daniel Corbin, who traded in a number of the deals through accounts in the name of his companies, Augustus Management LLC and Corbin Investment Holdings LLC. Corbin, a Miami-based trader, shared some of the profits he made with Bouchareb. Bouchareb and Corbin also shared an interest in a number of accounts that traded in the deals. In turn, Corbin provided the information to his father Lee Corbin, an attorney based in White Plains, N.Y. Lee Corbin traded in his personal accounts in four of the deals and owned an interest in the Corbin Investment Holdings account that Daniel used to trade in the deals. Bouchareb and Corbin introduced Devlin to Lee Corbin, who steered Devlin business from some of his trusts and estates clients. Bouchareb also provided the information to his girlfriend, Maria Checa, who currently resides in Greensboro, N.C. Checa traded in her accounts, Checa International, Inc. and Playmate Capital LLC. Bouchareb shared in some of the profits that Checa made. In total, Bouchareb, Daniel Corbin, Lee Corbin, Maria Checa and Bouchareb’s parents reaped illegal profits of more than $4.2 million.
Devlin’s Other Tippees
Frederick Bowers, a registered representative at Lehman and one of Devlin’s work partners was tipped on at least three of the transactions. Bowers then tipped Thomas Faulhaber, one of Bowers’ clients at Lehman. Faulhaber realized profits of approximately $217,000. Faulhaber kicked back cash to Bowers who shared some of it with Devlin. Devlin received at least $10,000.
Eric Holzer, Devlin’s friend and a tax associate in the New York City office of an international law firm, traded in at least three of the transactions. Holzer reaped profits of $175,000 in his own accounts and two accounts controlled by his father. Holzer gave Devlin cash, some of which came from shares he had his father buy on Devlin’s behalf.
Jeffrey Glover, another of Devlin’s Lehman clients and an investment adviser, traded in at least five of the deals. Glover, who is a resident of Bellaire, Texas, made approximately $189,000 in illicit profits.
Devlin, Bouchareb, Daniel Corbin, Bowers, Faulhaber, Holzer, Glover, Corbin Investment Holdings, LLC and Augustus Management, LLC are charged with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5 and 14e-3. The SEC seeks injunctive relief, disgorgement of illicit profits with prejudgment interest, and financial penalties. Checa, Checa International, Inc. and Lee Corbin are charged as relief defendants and the SEC seeks their trading profits.
The Commission thanks the U.S. Attorney’s Office and the Federal Bureau of Investigation for their assistance in connection with this matter. The Commission also thanks FINRA, NYSE Regulation, Inc., the International Securities Exchange and the Options Regulatory Surveillance Authority for their assistance.