WEBVTT - An Insider Trading Ring with ’Ocean’s 11’ Overtones

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<v Speaker 1>Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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<v Speaker 1>day we bring you inside an analysis into the most

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<v Speaker 1>and on Bloomberg dot com slash podcasts Vegas, Vegas, Vegas

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<v Speaker 1>Casino security cannot be beaten out of your minds exactly.

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<v Speaker 1>You need at least a dozen guys doing a combination

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<v Speaker 1>of cons It might remind you of the cast of

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<v Speaker 1>Ocean's eleven. A poker playing securities trader in Monaco, a

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<v Speaker 1>Greek with a chain of Manhattan restaurants, the son of

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<v Speaker 1>a pharmaceuticals company board member, a Goldman Sachs vice president,

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<v Speaker 1>and a London investment banking couple who called each other

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<v Speaker 1>Pops and Popsy. They're all accused of making tens of

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<v Speaker 1>millions of dollars in an international insider trading ring. Joining

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<v Speaker 1>me is former federal prosecutor Peter Henning, a professor at

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<v Speaker 1>Wayne Stay University Law School. Peter tell us about this

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<v Speaker 1>international insider trading ring. It starts with the two junior

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<v Speaker 1>analysts who were working in London, who were also sharing

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<v Speaker 1>an apartment and so what they did, in effect was

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<v Speaker 1>they just went into the computer systems at their offices

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<v Speaker 1>in stole information and then went out and sold it

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<v Speaker 1>to what the Justice Department describes as middlemen, who then

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<v Speaker 1>in turn sold it to other traders in Europe. So

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<v Speaker 1>the interesting question in this case is will this ever

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<v Speaker 1>see the inside of a US courtroom because one of

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<v Speaker 1>the defendants is back in Thailand and one of the

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<v Speaker 1>defendants is in France, and so will there be extradition

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<v Speaker 1>to the United States. That's certainly an open question. So

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<v Speaker 1>how sophisticated was the scheme? Well, this is a multilayered scheme.

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<v Speaker 1>It start started with stealing the information, but then it

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<v Speaker 1>got sold to the middlemen, who in turn gave it

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<v Speaker 1>to others in Europe to trade. This was a multi

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<v Speaker 1>level insider trading scheme that started with stealing information but

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<v Speaker 1>now has grown to be probably the most significant insider

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<v Speaker 1>trading case that we've seen in the last decade since

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<v Speaker 1>Raj Raj Rottenham, because this was so systematic and the

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<v Speaker 1>amount of money involved here. According to the Justice Department indictment,

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<v Speaker 1>it said that the traders made tens of millions of

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<v Speaker 1>dollars and so This is really a very significant insider

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<v Speaker 1>trading case. Is it significant in terms of the amount

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<v Speaker 1>of money or in terms of the extent of the

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<v Speaker 1>network of people involved. I think it's both because when

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<v Speaker 1>you look, the Department of Justice identified sixteen different companies

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<v Speaker 1>that were involved in corporate transactions from and also to

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<v Speaker 1>Given the amount of money involved, I'm not sure if

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<v Speaker 1>the Justice Department or the SEC knows exactly how much

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<v Speaker 1>money was made, but they're, off the top of their

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<v Speaker 1>head estimate is tens of millions of dollars, and under

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<v Speaker 1>the federal sentencing guidelines, if you have gains of that amount,

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<v Speaker 1>that can result in a very, very substantial prison term.

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<v Speaker 1>But a lot of this was conducted face to face,

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<v Speaker 1>and so it's going to be more difficult for the

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<v Speaker 1>prosecutors to put a case together without a cooperator, and

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<v Speaker 1>so they're really going to need someone to come in

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<v Speaker 1>and cooperate and be able to say this is what happened,

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<v Speaker 1>because otherwise all you really have is a paper trail

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<v Speaker 1>and people making money. But you know, in the stock market,

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<v Speaker 1>people make money all the time. A Goldman Sachs vice

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<v Speaker 1>president is involved here, and this is the third allegation

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<v Speaker 1>of insider trading in the last eighteen months of someone

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<v Speaker 1>at Goldman Sachs. Well, they're all separate cases, and what

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<v Speaker 1>is interesting about them, and of course what is really

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<v Speaker 1>the danger for Goldman Sachs is the last thing they

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<v Speaker 1>want to have happen is that people inside the firm

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<v Speaker 1>are trading on inside information. The very reason why Goldman

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<v Speaker 1>is retained is that it will maintain the confidentiality of

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<v Speaker 1>the information. So the case against Mr Khne involves a

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<v Speaker 1>buyout of Buffalo Wild Wings and he was able to

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<v Speaker 1>give someone that information who made a great deal of money,

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<v Speaker 1>and he got some cash in return, at least according

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<v Speaker 1>to the indictment by the U. S. Attorney's Office. So really,

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<v Speaker 1>for Goldman there is some reputational risk here that the

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<v Speaker 1>last thing they want to have is a number of

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<v Speaker 1>their people trading on inside information, because that damages not

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<v Speaker 1>only their reputation, but also will firms rely on Goldman

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<v Speaker 1>to maintain confidentiality. And so I really think for Goldman

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<v Speaker 1>they need to ensure that this doesn't happen again. Three

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<v Speaker 1>times in eighteen months is quite a bit, even though

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<v Speaker 1>the cases are unrelated. But there's always the concern that

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<v Speaker 1>somehow information is leaking out, and we see that a

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<v Speaker 1>lot information does leak and people make very well timed trades.

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<v Speaker 1>But the last thing Goldman wants is that one of

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<v Speaker 1>its people is the source of that inside information. Is

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<v Speaker 1>it that Goldman is just not doing enough to to

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<v Speaker 1>make sure this kind of misconduct doesn't happen, or is

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<v Speaker 1>that a problem that all the top tier banks has.

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<v Speaker 1>I think it's a problem for all the top tier banks.

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<v Speaker 1>If you want to trade on inside information or confidential

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<v Speaker 1>corporate information, Um, sometimes it is just so tempting to

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<v Speaker 1>either take it and give it to someone else, or

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<v Speaker 1>take it and use it yourself. Um. That inside information

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<v Speaker 1>in a lot of ways is like making free money

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<v Speaker 1>in the stock market. Um, you don't know who's on

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<v Speaker 1>the other side of your trade. But in a lot

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<v Speaker 1>of ways, it's easy money. But at some point in time,

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<v Speaker 1>the SEC is going to notice, and the federal prosecutors

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<v Speaker 1>are going to notice, and you're running a risk of

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<v Speaker 1>not only blowing your entire career, but you could spend two, three, four,

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<v Speaker 1>five years in a federal correctional institution. And no one

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<v Speaker 1>wants to go to prison. And so the real risk

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<v Speaker 1>here is that it's so tempting, but you have to

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<v Speaker 1>be able to resist it. And I'm sure Goldman and

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<v Speaker 1>the other leading investment banks would love to tell their

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<v Speaker 1>people don't do this, but um, can you stop someone

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<v Speaker 1>from taking inside information? Really, the answer to that question

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<v Speaker 1>is no. That someone really wants to take it and

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<v Speaker 1>use it, they're going to do it. Thanks Peter, that's

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<v Speaker 1>Peter Henning of Wayne State University Law School. Thanks for

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<v Speaker 1>listening to the Bloomberg Law Podcast. You can subscribe and

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<v Speaker 1>listen to the show on Apple Podcasts, SoundCloud, and on

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<v Speaker 1>Bloomberg dot com slash podcasts. I'm June Brosso. This is

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<v Speaker 1>Bloomberg