Legal News

Schapiro the Hero? A Big Tuesday at the SEC

By Ashby Jones

The Securities and Exchange Commission, which has taken a lot of public-relations blows over the past few months, came out swinging on Tuesday, signaling that its new head, Mary Schapiro, isn’t afraid to file high-profile lawsuits or venture into unchartered waters.

Insider-Trading and CDSs: For starters, the SEC brought its first-ever case alleging insider trading in credit-default swaps. The SEC’s case, brought in New York federal court, hinges on a relatively small profit earned in the 2006 buyout of Dutch media company VNU NV. The SEC alleges in a civil complaint that Jon-Paul Rorech, a 38-year-old salesman for Deutsche Bank AG, passed confidential information about VNU to Renato Negrin, a 45-year-old former trader for the hedge fund Millennium Partners.

Negrin allegedly used that information to earn a $1.2 million profit on credit-default swaps tied to the value of the company’s debt. Rorech, in turn, got some of the trader’s sales business, the complaint alleges. Click here for the WSJ story; here for the NYT’s.

Attorneys for both men say their clients are innocent, and that that the SEC doesn’t have jurisdiction because the derivatives contracts are tied to European bonds that aren’t regulated by the SEC. According to the NYT, Goodwin Procter’s Richard Strassberg is repping Rorech; Lawrence Iason of Morvillo, Abramowitz is serving as Negrin’s lawyer.

Father-Son Fraud? Separately, on Tuesday, the SEC accused the founder of Reserve Primary Fund and his son of fraud in misleading investors, ratings firms and trustees when the fund struggled with plummeting asset values and panicked selling in September. Click here for the WSJ story; here for the NYT story;

The civil lawsuit, also filed in federal court in New York, seeks an order to distribute the $62 billion money-market fund’s remaining assets to investors. About 90% of the fund’s assets have been returned, but its management has held back about $3.5 billion pending resolution of about 29 civil lawsuits filed by investors.

The father-son team named in the complaint, Bruce Bent Sr. and Bruce Bent II, "engaged in a systematic campaign to deceive the investing public," the SEC said in the lawsuit. The government also said that the two men had "placed their own financial and reputation interests ahead of the fund and its shareholders." In a statement, the senior Bent said that his company would defend itself vigorously

Full post as published by Law Blog - WSJ.com on May 06, 2009 (boomark / email).