A JUDGE APPROVES SEC SETTLEMENT WITH SIGMA CAPITAL REGARDING ALLEGED ISIDER TRADING

FROM: U.S. SECRUITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today announced the court approval of settlements reached with the New York-based hedge fund advisory firm Sigma Capital Management in which Sigma Capital and two affiliates agreed to pay nearly $14 million to settle charges that the firm engaged in insider trading based on nonpublic information obtained through one of its analysts about the quarterly earnings of Dell and Nvidia Corporation. The settlements were approved by the Honorable Harold Baer of the United States District Court for the Southern District of New York on March 28, 2013.

The SEC’s case, borne out of its ongoing investigation into expert networks and the trading activities of hedge funds, began last year with charges against several hedge fund managers and analysts including Jon Horvath, a former analyst at Sigma Capital. Horvath agreed to a settlement in March 2013 in which he admitted liability.

In a complaint filed on March 15, 2013 along with the proposed settlements, the SEC charged Sigma Capital in the insider trading scheme and named two affiliated hedge funds - Sigma Capital Associates and S.A.C. Select Fund - as relief defendants that unjustly benefited from Sigma Capital’s violations. S.A.C. Select Fund is affiliated with S.A.C. Capital Advisors.

The SEC’s complaint alleged that Horvath provided Sigma Capital portfolio managers with nonpublic details about quarterly earnings at Dell and Nvidia after he learned them through a group of hedge fund analysts with whom he regularly communicated. Based on the confidential information, Sigma Capital traded Dell and Nvidia securities in advance of earnings announcements in 2008 and 2009 for $6.425 million in gains for its hedge fund affiliates.

Without admitting or denying the charges, Sigma Capital agreed to pay disgorgement of $6.425 million plus prejudgment interest of $1,094,161.92 and a penalty of $6.425 million. Sigma Capital is also permanently enjoined from future violations of the antifraud provisions of the federal securities laws.

According to the SEC’s complaint, the key inside information that Horvath obtained about upcoming earnings announcements by Dell and Nvidia often differed significantly from the predictions of market analysts, who only had access to publicly available information. Based on this inside information, Sigma Capital traded Dell and Nvidia securities in advance of four quarterly earnings announcements and reaped more than $5.2 million for its hedge fund Sigma Capital Associates. Horvath’s inside information also enabled S.A.C. Select Fund to execute trades and avoid losses of more than $1 million. The SEC’s complaint charged Sigma Capital with violating Section 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

HEDGE FUND WHITMAN CAPITAL CHARGED WITH ALLEGED INSIDER TRADING BY SEC

The following excerpt is from the SEC website: “Washington, D.C., Feb. 10, 2012 — The Securities and Exchange Commission today charged a hedge fund manager and his Menlo Park, Calif.-based firm for their involvement in the insider trading ring connected to Raj Rajaratnam and hedge fund advisory firm Galleon Management. The SEC alleges that Douglas F. Whitman and Whitman Capital illegally traded based on material nonpublic information obtained from Rajaratnam associate Roomy Khan, who was Whitman's friend and neighbor. Khan tipped Whitman with confidential details about Polycom Inc.'s fourth quarter 2005 earnings and Google Inc.'s second quarter 2007 earnings prior to the public announcements of those financial results by the companies. Whitman Capital reaped nearly $1 million in ill-gotten gains by trading on Khan's illegal tips. "Whitman engaged in what even he termed 'slimeball' activity and together with Khan brought new illicit meaning to the maxim 'help thy neighbor,'" said George S. Canellos, Director of the SEC's New York Regional Office. Sanjay Wadhwa, Associate Director of the SEC's New York Regional Office and Deputy Chief of the Market Abuse Unit, added, "This action should send a strong signal that the SEC will continue to pursue every angle of the Galleon investigation to hold accountable those who have undermined the integrity of our markets by engaging in illegal insider trading." According to the SEC's complaint, filed in federal court in Manhattan, the inside information about Polycom and Google used by Whitman is the same information that the SEC has previously alleged Khan provided to many of her hedge fund contacts, including Rajaratnam as well as Robert Feinblatt and Jeffrey Yokuty at Trivium Capital. The SEC alleges that Khan illegally tipped Whitman in January 2006 with information about Polycom's quarterly financial results, and she noted that these details were nonpublic and acquired from a source at Polycom. Whitman Capital accumulated 132,263 shares of Polycom stock in the next two weeks. When the company announced its results on January 25, Whitman Capital liquidated its entire Polycom position for a profit of more than $360,000. On at least one later occasion, in September 2008, Whitman asked Khan to contact her Polycom source to obtain inside information about the company's upcoming earnings so the two could "short it." When Khan rebuffed Whitman citing a fear of getting caught, Whitman suggested that she use "Skype" to avoid detection. Whitman later stated that he would stop speaking to Khan if she wasn't going to be a "slimeball" anymore. The SEC further alleges that Khan illegally tipped Whitman with inside information about Google's quarterly financial results shortly before the company's post market-close earnings announcement on July 19, 2007. At Whitman's insistence, Khan identified her Google source as an employee of an investor relations firm used by Google. Whitman Capital funds then purchased 2,761 Google put option contracts based on the tip from Khan. On July 20, Whitman Capital closed the put option positions and generated ill-gotten profits of more than $620,000. Afterwards, Whitman sent Khan a large floral arrangement to thank her for the tip. The SEC's complaint charges Whitman and Whitman Capital with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining the defendants from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties. The SEC has charged 30 defendants in its Galleon-related enforcement actions, which have exposed widespread and repeated insider trading at numerous hedge funds and by other traders, investment professionals, and corporate insiders located throughout the country. The insider trading occurred in the securities of more than 15 companies for illicit profits totaling more than $91 million. The SEC's investigation, which is continuing, has been conducted by John Henderson and Joseph Sansone - members of the SEC's Market Abuse Unit in New York - and Diego Brucculeri and James D'Avino of the New York Regional Office. Kevin McGrath and Valerie Szczepanik will lead the SEC's litigation effort. The SEC thanks the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation for their ongoing assistance in the matter.”