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

Ocean's eleven. A poker playing securities trader in Monaco, a Greek with a chain of Manhattan restaurants, the son of a pharmaceuticals company board member, a Goldman Sachs vice president, and a London investment banking couple who called each other Pops and Popsy. They're all accused of making tens of millions of dollars in an international insider trading ring. Joining me is former federal prosecutor Peter Henning, a professor at Wayne Stay University Law School. Peter tell us about this

international insider trading ring. It starts with the two junior analysts who were working in London, who were also sharing an apartment and so what they did, in effect was they just went into the computer systems at their offices in stole information and then went out and sold it to what the Justice Department describes as middlemen, who then

in turn sold it to other traders in Europe. So the interesting question in this case is will this ever see the inside of a US courtroom because one of the defendants is back in Thailand and one of the defendants is in France, and so will there be extradition to the United States. That's certainly an open question. So how sophisticated was the scheme? Well, this is a multilayered scheme. It start started with stealing the information, but then it got sold to the middlemen, who in turn gave it

to others in Europe to trade. This was a multi level insider trading scheme that started with stealing information but now has grown to be probably the most significant insider trading case that we've seen in the last decade since Raj Raj Rottenham, because this was so systematic and the amount of money involved here. According to the Justice Department indictment, it said that the traders made tens of millions of dollars and so This is really a very significant insider

trading case. Is it significant in terms of the amount of money or in terms of the extent of the

network of people involved. I think it's both because when you look, the Department of Justice identified sixteen different companies that were involved in corporate transactions from and also to Given the amount of money involved, I'm not sure if the Justice Department or the SEC knows exactly how much money was made, but they're, off the top of their head estimate is tens of millions of dollars, and under the federal sentencing guidelines, if you have gains of that amount,

that can result in a very, very substantial prison term. But a lot of this was conducted face to face, and so it's going to be more difficult for the prosecutors to put a case together without a cooperator, and so they're really going to need someone to come in and cooperate and be able to say this is what happened, because otherwise all you really have is a paper trail and people making money. But you know, in the stock market,

people make money all the time. A Goldman Sachs vice president is involved here, and this is the third allegation of insider trading in the last eighteen months of someone at Goldman Sachs. Well, they're all separate cases, and what is interesting about them, and of course what is really the danger for Goldman Sachs is the last thing they want to have happen is that people inside the firm

are trading on inside information. The very reason why Goldman is retained is that it will maintain the confidentiality of the information. So the case against Mr Khne involves a buyout of Buffalo Wild Wings and he was able to give someone that information who made a great deal of money, and he got some cash in return, at least according

to the indictment by the U. S. Attorney's Office. So really, for Goldman there is some reputational risk here that the last thing they want to have is a number of their people trading on inside information, because that damages not only their reputation, but also will firms rely on Goldman to maintain confidentiality. And so I really think for Goldman they need to ensure that this doesn't happen again. Three times in eighteen months is quite a bit, even though

the cases are unrelated. But there's always the concern that somehow information is leaking out, and we see that a lot information does leak and people make very well timed trades. But the last thing Goldman wants is that one of its people is the source of that inside information. Is it that Goldman is just not doing enough to to make sure this kind of misconduct doesn't happen, or is that a problem that all the top tier banks has. I think it's a problem for all the top tier banks.

If you want to trade on inside information or confidential corporate information, Um, sometimes it is just so tempting to either take it and give it to someone else, or take it and use it yourself. Um. That inside information in a lot of ways is like making free money in the stock market. Um, you don't know who's on the other side of your trade. But in a lot

of ways, it's easy money. But at some point in time, the SEC is going to notice, and the federal prosecutors are going to notice, and you're running a risk of not only blowing your entire career, but you could spend two, three, four, five years in a federal correctional institution. And no one wants to go to prison. And so the real risk here is that it's so tempting, but you have to

be able to resist it. And I'm sure Goldman and the other leading investment banks would love to tell their people don't do this, but um, can you stop someone from taking inside information? Really, the answer to that question is no. That someone really wants to take it and use it, they're going to do it. Thanks Peter, that's Peter Henning of Wayne State University Law School. Thanks for

listening to the Bloomberg Law Podcast. You can subscribe and listen to the show on Apple Podcasts, SoundCloud, and on Bloomberg dot com slash podcasts. I'm June Brosso. This is Bloomberg