Wednesday, 24 August 2016
Last updated 8 hours ago
May 5 2009 | 11:10am ET
The Securities and Exchange Commission today charged two former Wall Street executives—including a former hedge fund manager—with insider trading in credit default swaps of media giant VNU N.V.
The SEC leveled the chargeds against Renato Negrin, a former portfolio manager at hedge fund investment adviser Millennium Partners, and Jon-Paul Rorech, a salesman at Deutsche Bank Securities.
The complaint alleges that Rorech learned information from Deutsche Bank investment bankers about a change to the proposed VNU bond offering that was expected to increase the price of the CDS on VNU bonds. Deutsche Bank was the lead underwriter for a proposed bond offering by VNU. According to the SEC's complaint, Rorech illegally tipped off Negrin about the contemplated change to the bond structure, and Negrin then purchased CDS on VNU for a Millennium hedge fund. When news of the restructured bond offering became public in late July 2006, the price of VNU CDS substantially increased, and Negrin closed Millennium's VNU CDS position at a profit of approximately $1.2 million.
"This is the first insider trading enforcement action involving credit default swaps," said Scott Friestad, deputy director of the SEC's Division of Enforcement. "As alleged in our complaint, Rorech and Negrin checked their integrity at the door and schemed to engage in insider trading of CDS to the detriment of investors and our markets."
James Clarkson, acting director of the SEC's New York office, added, "CDS may still be obscure to the average individual investor, but there is nothing obscure about fraudulently trading with an unfair advantage. Although CDS market participants tend to be experienced professionals, there must be a level playing field with even the most sophisticated financial instruments."
The case was handled by the SEC Enforcement Division's Hedge Fund Working Group, which is investigating fraud and market manipulation by hedge fund investment advisers. The SEC has brought more than 100 cases involving hedge funds in the past five years, including more than 20 this year alone. The SEC already has brought more enforcement actions involving hedge funds in the first four months of this year than all of last year.
The SEC's complaint charges Negrin and Rorech with violations of the antifraud provisions of the Securities Exchange Act of 1934 and seeks a final judgment ordering them to pay financial penalties and disgorgement of ill-gotten gains plus prejudgment interest. Millennium has agreed to escrow the amount that the SEC is seeking as ill-gotten gains pending a final judgment in this case.