Typical Insider Trading Case

Here is a typical insider trading case from today's New York Times...

December 19, 2008

Prosecutors Accuse Ex-Lehman Broker of Passing Tips on Mergers

By ANDREW ROSS SORKIN and MICHAEL J. de la MERCED

“Where has my goose gone? Come back little goose.”

So went an instant message from a day trader to his broker, seeking a tip as part of a $4.8 million insider-trading scheme disclosed by regulators on Thursday.

Prosecutors accused the broker, Matthew C. Devlin of Lehman Brothers, of illegally passing on inside information about at least 12 coming mergers — including InBev’s takeover of Anheuser-Busch and Dow Chemical’s acquisition of Rohm & Haas — that he surreptitiously obtained from his wife, a public relations executive whom he repeatedly referred to as his “golden goose.”

The United States attorney for the Southern District of New York charged four people, including Mr. Devlin, with conspiracy and securities fraud that took place over more than four years, during the latest takeover boom. Separately, the Securities and Exchange Commission filed civil charges against seven people and is seeking to reclaim trading profits from two others, including a Playboy playmate.

The case harks back to a case in the 1980s when Martin Siegel, of Kidder Peabody, and Dennis Levine, of Drexel Burnham Lambert, traded inside information ahead of big mergers using cryptic phrases like “Your bunny has a good nose.”

Mr. Devlin is accused of taking advantage of confidential information gleaned from his wife, Nina, who was employed by the Brunswick Group, a London-based public relations firm that has become a big player in the world of high finance.

Financial public relations firms like Brunswick are often as deeply embedded in deals as the bankers and lawyers who negotiate them. Employees like Mrs. Devlin are made privy to secret discussions as top executives shape the public strategies of the deals.

Prosecutors say the scheme began in March 2004, when Mr. Devlin began passing on tips about deals like General Electric’s purchase of InVision to Jamil Bouchareb, a friend who was a day trader and restaurateur. Mr. Bouchareb, in turn, passed on tips to his girlfriend, Maria T. Checa, a Playboy playmate; to his parents; and to his business partner, Daniel Corbin. Mr. Corbin passed on various tips to his father, Lee Corbin, a lawyer.

Mr. Devlin also tipped off a Lehman colleague, Frederick Bowers, on several occasions, who, in turn, tipped another client, Thomas Faulhaber. Mr. Devlin also tipped Eric Holzer, a friend and tax lawyer at Paul Hastings who regularly did the Devlins’ taxes. Mr. Holzer also tipped his father.

In return, prosecutors say, Mr. Devlin was given cash kickbacks, a Cartier watch, a Barneys New York gift card, a widescreen TV, a Ralph Lauren leather jacket and a lesson at a Porsche driving school.

Mr. Devlin has pleaded guilty to four counts of conspiracy and one count of securities fraud; Mrs. Devlin was not implicated, and prosecutors contend that she was unaware of her husband’s dealings. Indeed, Mr. Devlin told Mr. Bouchareb and Daniel Corbin several times that his wife would divorce him if she discovered his insider trading, according to the criminal complaint.

“She was completely unaware that confidential information about her job was being used as the basis for securities trading,” James J. Benjamin Jr., a lawyer for Mrs. Devlin, said in a statement. “She is devastated by this terrible situation.”

In a statement from Brunswick, the firm said, “Our employee was the victim of a criminal act by her spouse.”

Lilly Ann Sanchez, a lawyer for Jamil Bouchareb, said her client would plead not guilty. “The facts aren’t always as presented by the government,” she said. “We are surprised by the allegations and believe that once all the facts are revealed, Mr. Bouchareb will be exonerated.”

The Devlin case appears similar to some others filed in recent years. In 2006, a stockbroker pleaded guilty to insider trading after profiting from inside information gained from his girlfriend, a lawyer at Weil, Gotshal & Manges. And last year, a man who was a vice president at Oracle pleaded guilty to trading on information about potential acquisitions that he obtained from his wife, an executive assistant to Lawrence J. Ellison, the technology giant’s chief executive.

The scheme nearly fell apart in April 2006, when Brunswick received a notice from Finra, the securities industry’s own watchdog. The notice showed Mr. Holzer on a “watch list” for trading. It appears Mrs. Devlin communicated that information to her husband. Nonetheless, the group continued to trade in various other deals like Electronic Arts’s bid for Take-Two Interactive.

Prosecutors contacted Lehman Brothers earlier this year, before the firm filed for bankruptcy, notifying them that they were investigating Mr. Devlin and Mr. Bowers. Lehman was told not to take any action against the two.

In a statement, Barclays Wealth, which absorbed the Lehman unit that Mr. Devlin and Mr. Bowers worked for, said: “Barclays Wealth — and Lehman Brothers prior to its acquisition — cooperated fully with law enforcement authorities to assist them in their investigation into this alleged insider trading ring.”

By the fall, Mr. Devlin began cooperating with federal investigators, including by secretly taping conversations with Mr. Bouchareb, Daniel Corbin and Mr. Holzer. He persuaded Mr. Bouchareb to acknowledge on tape that they might need a back story for their earlier trading.

“Right, right, right,” Mr. Bouchareb said. “Don’t worry, we’re on it.”