Source: https://pingpdf.com/pdf-daniel-rivas-et-al-secgov.html
Timestamp: 2019-04-21 00:08:01+00:00

Document:
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v.
SUMMARY OF THE ACTION 1.
$5 million by tipping and trading on inside information about dozens of impending corporate mergers, acquisitions, and tender offers. 2.
provides investment banking services for business combinations like mergers, acquisitions, and tender offers—stood at the center of the illegal scheme. 3.
computer system the Bank used to track its investment banking deals. Rivas had access to highly-confidential information about hundreds of potential business combinations that had not yet been announced to the public. 4.
about dozens of impending deals by repeatedly passing the information to defendants Moodhe, Rodriguez, Sablon and Zoquier (collectively, the “Direct Tippees”) through three different tipping chains described below. The Direct Tippees traded on the information and passed Rivas’s tips to others, including defendants Siva and Rogiers. Siva and Rogiers traded on the tips and tipped at least three other traders. In total, at least ten individuals traded on tips, and one or more of these traders made profits on market-moving news about thirty actual or contemplated corporate deals. 5.
acquisition targets for profits of over $300,000. 6.
communicated confidential information he obtained from the Bank to two friends who reside in Florida, Rodriguez and Sablon. Rodriguez and Sablon shared the tips they received from Rivas with one another and, in just over a year, generated profits totaling over $2 million on their initial investment of less than $100,000. Rodriguez also repeatedly passed Rivas’s tips to his friend and close business colleague (“RR Friend”), who used the tips to make profits of more than $67,000. 7.
communicated inside information he obtained from the Bank to Zoquier, a friend of Rivas who resides in New Jersey. Zoquier traded on the inside information and profited by over $30,000. In addition, Zoquier repeatedly passed confidential information received from Rivas to Zoquier’s close friend, Rogiers, who in turn traded on several tips for profits of over $50,000. Rogiers also tipped two of his own friends and former colleagues (“JR Friend 1” and “JR Friend 2”), who in turn traded on the tips and collectively profited by over $400,000. 8.
Direct Tippees, and from the Direct Tippees to several downstream traders (including Siva and Rogiers).
unless restrained and enjoined will continue to violate, Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. §§ 78j(b), 78n(e)] and Rules 10b-5 and 14e3 thereunder [17 C.F.R. §§ 240.10b-5, 240.14e-3]. NATURE OF PROCEEDING AND RELIEF SOUGHT 10.
27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), 78u-1, and 78aa]. Certain of the acts, practices, transactions, and courses of business constituting the violations made use of a means or instrumentality of interstate commerce, or of the mails, and/or of the facilities of national securities exchanges. 12.
Venue in this District is proper under Section 27 of the Exchange Act [15 U.S.C.
§ 78aa]. At all relevant times, defendant Rivas worked at the Bank’s offices in New York, New York, and certain of the acts, practices, transactions, and courses of business constituting the violations alleged in this Complaint occurred in the Southern District of New York. THE DEFENDANTS 13.
April 2017, Rivas worked in the Bank’s capital markets technology group in New York, New York. 14.
worked as an assistant controller and treasurer for a financial services company. Moodhe is the father of Rivas’s girlfriend. 15.
subsidiary of a large financial services corporation headquartered in the United States, employs Siva in its Morristown, New Jersey office. Siva is Moodhe’s friend and financial advisor. 16.
at a tutoring company. Rodriguez is Rivas’s friend. 17.
company. Sablon is Rodriguez’s and Rivas’s friend. 18.
local branch of a large international employee union. Zoquier is Rivas’s friend.
Rogiers, age 33, resides in Oakland, California. Rogiers is a software engineer.
Rogiers is Zoquier’s friend and also knows Rivas. OTHER RELEVANT INDIVIDUALS 20.
MS Client is Siva’s client at the Brokerage Firm.
RR Friend is Rodriguez’s friend and colleague.
JR Friend 1 is Rogiers’s friend and former colleague.
Tippees about at least 30 publicly traded companies targeted for acquisition (“Target Companies”) in actual or contemplated mergers, acquisitions, and tender offers involving the Bank. (Appendix A lists each Target Company.) At all relevant times, each Target Company’s common stock was registered with the Commission under Section 12(b) of the Exchange Act. At all relevant times, the securities of each Target Company traded on United States securities exchanges. FACTUAL ALLEGATIONS A.
The Origins of the Scheme 25.
Bank’s capital markets technology group in New York, New York. During Rivas’s tenure, the Bank frequently provided investment banking services (including advisory services, debt financing, and fairness opinions) to publicly traded companies in connection with contemplated and actual business combinations. 26.
support of a new computer system, which was one of multiple computer systems that the Bank used to track its involvement in corporate transactions. Among other responsibilities, Rivas assisted bankers with technical issues related to the computer system. As a function of this role, from at least August 1, 2014 until April 14, 2017, Rivas had access to confidential information in the computer system about hundreds of potential corporate transactions, including impending mergers, acquisitions, and tender offers (the “Deals”). 28.
enter details about nonpublic corporate transactions, resulting in the creation of records in the system. Each system record contained critical information about each Deal, including: (1) a description of the Deal (e.g., “M&A” or “acquisition financing”); (2) the names of the companies involved in the Deal and their respective roles (e.g., “acquirer” or “target”); (3) the expected price of the Deal (e.g., the aggregate amount the acquiring company was expected to pay for the target company); and (4) the expected date on which the Deal would be announced to the public. Many of the system records included a field indicating that “the transaction is material nonpublic information.” Bankers updated the system records when new details about the Deals, such as a new deal price or expected announcement date, became known. As a member of the IT team responsible for supporting the computer system, Rivas knew the purpose and significance of the information in the system records. 29.
functions, Rivas was prohibited from disclosing confidential information in the computer system, from using the information for his personal benefit, or from recommending that others trade on the information. 30.
in or recommending securities while in possession of material nonpublic information relating to such securities; and (c) that material information included information on mergers, acquisitions, and tender offers not yet announced. 31.
Bank’s ethics code. The training materials provided to Rivas stated that “[a]cquisition information falls under the broad definition of what is considered material, nonpublic information.” The materials also stated that Bank employees “should not share [acquisition] information, as it is not permissible to do so.” 32.
material and nonpublic and that he had a duty to the Bank and its clients to keep such information confidential. 33.
material nonpublic information about the Deals to Moodhe, Rodriguez, Sablon, and Zoquier. 34.
information about Deals that had not yet been announced. First, Rivas communicated the names or stock trading ticker symbols of the Target Company and acquiring company listed in the relevant system record. Second, Rivas communicated the expected deal price listed in the relevant system record. Third, Rivas communicated the expected announcement date listed in the relevant system record. In addition, Rivas often communicated the Bank’s anticipated role in the Deal. The information Rivas communicated was maintained as confidential by the business entities participating in the Deals and by the Bank and had not been made public. 35.
on the basis of his tips. Rodriguez and Sablon sometimes sent Rivas screenshots from brokerage firm websites to demonstrate the trades they had placed and to keep Rivas apprised of profits they had made. Rivas also knew that Zoquier would trade and was trading profitably on the basis of the valuable information.
The Trading Defendants Profited on Tips About Thirty Deals 36.
the trading defendants. They used it to trade profitably on numerous occasions in the securities of Target Companies sought to be acquired in numerous Deals. As set forth in Appendix B to this Complaint, one or more of defendants Moodhe, Rodriguez, Sablon, Zoquier, Siva, and Rogiers traded, or tipped others to trade, ahead of news regarding at least thirty actual or contemplated Deals based on material nonpublic information that originated from Rivas. The traders profited on public announcements of the Deals and, in certain instances, on other marketmoving news or rumors about the Deals. 37.
the Direct Tippees relating to at least eleven tender offers. As set forth in Appendix B, one or more Defendants profitably traded or tipped others to trade on the basis of material nonpublic information relating to each of these tender offers. At the time Rivas tipped the Direct Tippees regarding these tender offers, a substantial step or steps to commence each of the offers— including (depending on the particular tender offer) negotiations, board meetings, the arrangement of financing, the hiring of advisors, or proposals—had been taken. C.
Tipping Chain #1: Rivas Tipped Moodhe 38.
records about impending Deals and tipped Moodhe to the material nonpublic information found therein so that Moodhe could profitably trade. On the basis of Rivas’s tips, Moodhe purchased stock or opened bullish options positions in at least twenty-five Target Companies (set forth in Appendix B). When news about the Deals was made public and the stock prices of the Target Companies increased, Moodhe disposed of his securities for substantial profits. In total, Moodhe realized over $2 million in profits by trading on the basis of Rivas’s tips. For More Than Two Years, Moodhe Repeatedly Engaged in Insider Trading 39.
himself and his family members to supplement his income from working at a financial services company. Hoping to help Moodhe make money trading, Rivas began providing Moodhe with valuable inside information misappropriated from the Bank. 40.
Covance Inc. (“Covance”) by Laboratory Corporation of America Holdings (“Lab Corp”). In October 2014, a record was created in the Bank’s computer system about the impending acquisition of Covance. The system record described the Bank as an advisor in an “M&A” transaction and listed “Laboratory Corp of America Holdings” as the “Acquirer” and “Covance Inc.” as the “Target.” 41.
2014, Rivas viewed the record again. Based on the information in the record, Rivas learned that Covance was likely to be acquired on or about November 3, 2014. After viewing the record and prior to the public announcement of the Covance acquisition, Rivas tipped Moodhe to trade on the information during an in-person conversation. 42.
October 27, 2014, at approximately $80 per share for a cost of about $40,300. The next day, October 28, 2014, Moodhe purchased 500 more shares of Covance stock at approximately $81 per share for a cost of about $40,500. 43.
to Moodhe, on the morning of November 3, 2014, Lab Corp and Covance announced a definitive agreement under which Lab Corp would acquire Covance for $105.12 per share. Later that day, Moodhe sold the 1,000 shares of Covance stock he had purchased based on Rivas’s tip for a profit of more than $19,000—representing a 23% return. 44.
profitably trade. Throughout the scheme, Moodhe knew that Rivas had access to the confidential information about the Deals through his work at the Bank. 45.
trades on that basis, Moodhe asked Rivas to provide updates about the Deal’s progress. Rivas returned to the relevant system records and communicated updated information, when available, to Moodhe. 46.
communicate through electronic means such as phone calls, text messages, or emails. Instead, Rivas tipped Moodhe through other methods. For instance, Rivas provided handwritten notes to Moodhe’s daughter, who was Rivas’s girlfriend. These handwritten notes generally included: (1) the ticker symbol for the acquiring company; (2) the ticker symbol for the Target Company; (3) the expected Deal price; (4) the expected announcement date; and (5) the Bank’s role in the Deal. In addition, Rivas tipped Moodhe during in-person meetings at their respective residences. 47.
out-of-the-money call options of certain Target Companies to maximize his profits. As a buyer of call options, Moodhe purchased the right (but not the obligation) to purchase a Target Company’s stock at a set “strike price” for a period of time through the “expiration date.” The call options were “out of the money” when the Target Company’s stock was trading at a price below the option’s strike price. Moodhe purchased out-of-the-money call options because he expected the stock prices of Target Companies to increase when the Deals were publicly announced. 48.
pursued through tender offers. While in possession of the inside information from Rivas, Moodhe repeatedly (as set forth in Appendix B) purchased the securities of the Target Companies sought to be acquired in the tender offers.
Tipping Chain #1 (Second-Level): Moodhe Tipped Siva 49.
least January 2015 until early 2017, Moodhe repeatedly passed Rivas’s material nonpublic information about the Deals to Moodhe’s friend Siva. Throughout this time, Moodhe provided Siva with the names of Target Companies and acquiring companies, expected announcement dates, and deal prices that Siva knew related to impending corporate transactions that had not yet been publicly announced. 50.
in the securities of at least thirteen Target Companies (set forth in Appendix B), in close parallel with trades placed by Moodhe. Siva also traded in the securities of at least two Target Companies—Diamond Resorts International, Inc. (“Diamond”) and Outerwall Inc. (“Outerwall”)—on behalf of himself and his wife on the basis of material nonpublic information from Moodhe. When news about the Deals was made public and the stock prices of the Target Companies increased, Siva sold the securities that he had acquired for himself, his wife, and his clients for substantial profits. 51.
trades in their accounts on the basis of material nonpublic information from Moodhe. By placing these trades for his clients, Siva earned commissions for himself and the Brokerage Firm. In addition, Siva realized for himself and his wife more than $8,000 in profits by trading on the basis of material nonpublic information from Moodhe. 52.
early 2017, Siva used the information he received from Moodhe to tip his longtime client, MS Client, to trade in the securities of Target Companies. As a result of Siva’s tips, MS Client traded in the securities of at least seven Target Companies (set forth in Appendix B) generating profits of more than $300,000. For More Than Two Years, Siva Repeatedly Engaged in Insider Trading 53.
working together at a brokerage firm in the mid-1990s. Their friendship centered on their mutual interest in trading securities. Before the insider trading scheme alleged in this Complaint began, they frequently discussed trading strategies over the phone. They also met in person to socialize. 54.
Moodhe began sharing Rivas’s insider trading tips with Siva. Over the course of 2015, Moodhe shared numerous tips with Siva. As set forth in Appendix B, Siva, in turn, repeatedly purchased the stock of Target Companies for his clients based on Moodhe’s tips. 55.
Siva in early 2016 concerned the impending acquisition of The ADT Corporation (“ADT”) by affiliates of Apollo Global Management LLC (“Apollo”) in February 2016. 56.
record the Bank’s work on the ADT acquisition. The system record reflected that ADT was the Target Company and Apollo was the acquirer and listed an expected deal price and announcement date. After reviewing the record, Rivas communicated the confidential information contained therein to Moodhe, who, in turn, passed Rivas’s insider trading tip to Siva. 57.
him regarding the potential ADT acquisition. Just minutes later, at 10:13 a.m. EST, Siva placed an order to buy ADT stock on behalf of one of his clients at the Brokerage Firm. Only minutes after Siva, at 10:17 a.m. EST, Moodhe placed an order to buy ADT stock in a brokerage account he maintained at another brokerage firm. Prior to placing their respective trades, neither Moodhe nor Siva had any recent history trading in ADT securities. 58.
approximately $40 per share, generating total profits of about $26,400. By trading on the inside information relayed by Moodhe, Siva realized for his clients a 45% percent return in less than a week. (Moodhe also sold his shares of ADT stock in the days following the announcement for profits of about $26,000.) 59.
potential Deal. After receiving the initial tips about the Deals, Siva asked Moodhe for updates on the status of Deals that had not yet been announced to the public. Upon obtaining additional inside information from Rivas, Moodhe provided the requested updates to Siva. Moodhe knew that Siva was trading on behalf of himself and his clients on the basis of the tips. 60.
recorded or overheard, Moodhe and Siva developed code phrases that they used when Moodhe passed Rivas’s insider trading tips to Siva via the telephone. 61.
Siva met in person for lunch so that Moodhe could provide Siva with more detailed information about the tips from Rivas. By meeting in person, Moodhe and Siva hoped to avoid recording of their conversations or any record that they had spoken. 62.
Target Companies and acquirers, deal prices, and expected announcement dates. Siva recorded the information in a notebook. Siva later assured Moodhe that the notebook was gone, indicating that Siva had disposed of it to eliminate evidence of his receipt of insider trading tips from Moodhe. 63.
as his friend. Siva requested more detailed information about the identity of Moodhe’s source, but Moodhe told him not to ask questions. 64.
family members’ accounts at one of these brokerage firms were closed. At that time, Moodhe transferred those accounts to the Brokerage Firm, where Siva worked, and became Siva’s client. From that point forward, Moodhe continued trading, based on tips from Rivas, in his and his family members’ Brokerage Firm accounts and one remaining account at another brokerage firm. 65.
the trades Moodhe placed through the Brokerage Firm in the securities of the Target Companies would, where possible, be marked as “solicited.” Trades are typically marked solicited when they are based on the recommendation of a financial advisor. In fact, both Siva and Moodhe knew that Moodhe’s trades in the securities of the Target Companies were based on tips from Moodhe’s source of inside information and not investment recommendations from Siva. 66.
gathered research relating to the Target Companies and sometimes emailed the research to Moodhe to create paper trails that would serve as non-fraudulent justifications for the illegal trading. Both Moodhe and Siva knew that their respective trades were based not on this research but on material nonpublic information about the Deals. 67.
from Siva, who was a sophisticated investment professional. Among other advice, Siva helped Moodhe to maximize the profit that he generated from trading on the tips by advising Moodhe about which options to trade in the Target Companies. (Options come in a variety of “series,” with different strike prices and expiration dates.) In addition, Siva provided Moodhe with valuable stock tips about securities unrelated to Rivas’s tips. For example, on one occasion midway through the scheme, Moodhe reaped approximately $4,000 in profits by trading in a security recommended by Siva. 68.
Siva Repeatedly Tipped MS Client 69.
Siva also repeatedly tipped MS Client to trade in the securities of Target Companies in accounts that MS Client held at other brokerages. MS Client is one of Siva’s longtime clients at the Brokerage Firm and had an account at the Brokerage Firm at all relevant times. Siva and MS Client have known one another for years. 70.
Siva to place trades in his account at the Brokerage Firm. In or around February 2016, on the basis of tips Siva had received from Moodhe, Siva began tipping MS Client to trade in the securities of Target Companies. From that point forward, MS Client authorized Siva to place numerous solicited trades on his behalf in MS Client’s account at the Brokerage Firm. The Brokerage Firm obtained commissions from MS Client for executing these trades. 71.
February 2016, he had not placed any trades in the outside brokerage account for years. After he began receiving tips from Siva, however, MS Client began trading frequently in the securities of the Target Companies in the outside brokerage account. 72.
Client opened additional brokerage accounts outside the Brokerage Firm in his own name and in the name of a family member. Going forward, MS Client placed trades on the basis of tips from Siva in those accounts as well. Based on tips from Siva, MS Client traded in bullish, out-of-themoney call options of the Target Companies. 73.
acquired in tender offers (set forth in Appendix B) under circumstances in which it was reasonably foreseeable that the communication was likely to result in the purchase and sale of the securities of the Target Companies.
Tipping Chain #2: Rivas Tipped Rodriguez and Sablon 74.
the Bank with his friends Rodriguez and Sablon. Neither Rodriguez nor Sablon was an experienced trader, but the confidential information flowing from Rivas gave them an enormous advantage on the market from the start. Continuing until April 2017, they repeatedly placed well-timed, highly-profitable trades in the securities of numerous Target Companies in advance of market-moving news about the Deals. 75.
options positions in at least fourteen Target Companies and Rodriguez purchased stock or opened bullish options positions in at least twelve Target Companies on the basis of tips from Rivas. When news about the Deals was made public and the stock prices of Target Companies increased, Sablon and Rodriguez disposed of their securities for substantial profits. In total, Sablon realized over $920,000 in profits while Rodriguez realized over $1.1 million in profits by trading on the basis of Rivas’s tips. In addition, from at least August 2016 until April 2017, Rodriguez frequently relayed Rivas’s tips to Rodriguez’s friend and colleague, RR Friend, who realized profits of more than $67,000 by trading in the securities of at least six Target Companies as set forth in Appendix B. For More Than One Year, Rodriguez and Sablon Each Repeatedly Engaged in Insider Trading 76.
the scheme. Rodriguez and Sablon both live in Florida and at the time the scheme began they had been friends for years. At one time, they worked closely together on the small executive staff of a tutoring company. Rodriguez and Sablon spoke frequently by phone both before and during the scheme. 78.
introduced Rivas to Sablon. Together, Rivas, Rodriguez, and Sablon had lunch to discuss the scheme. At that time, the three agreed that if Rodriguez’s and Sablon’s trading on the basis of Rivas’s tips proved profitable, Rodriguez and Sablon would start an investment fund with the proceeds and Rivas would join the fund. In subsequent conversations, Rodriguez and Sablon each reiterated to Rivas that he would have a role in the fund. 79.
and Sablon spoke on the telephone and exchanged texts on numerous occasions and met in person on several occasions to socialize (both with and without Rodriguez present) and discuss the scheme. Through their interactions, Sablon knew that Rivas worked at the Bank and that the confidential information Rivas provided came from the Bank. 80.
profits on the basis of Rivas’s tips. In December 2015, Sablon (who was not an experienced trader at the time) opened a brokerage account in his own name. The account’s initial balance was funded predominantly by Rodriguez. On or about December 8, 2015, Rodriguez transferred $25,000 from a business account Rodriguez controlled to Sablon’s personal bank account. On or about December 9, 2015, Sablon transferred $24,900 of those funds from his bank account to the brokerage account in his name and later used those funds to place trades based on Rivas’s tips. 81.
via in-person meetings and through phone calls and text messages. During this period, Rivas and Sablon exchanged dozens of text messages and numerous phone calls regarding the tips. 83.
potential acquisition of Monsanto Company (“Monsanto”) by Bayer AG. On the basis of the tip, Sablon purchased short-term, out-of-the-money Monsanto call options. When news about the potential acquisition was made public in May 2016, Sablon sold his Monsanto call options for more than $36,000 in profits. 84.
capitalize on the tips from Rivas. The first trade that Rodriguez placed in his account was based on a tip from Rivas concerning the impending acquisition of Elizabeth Arden, Inc. (“Arden”) by Revlon, Inc. From June 6 to June 13, 2016, Rivas repeatedly viewed a system record showing that the impending Arden acquisition would soon be announced and passed confidential information about the transaction to Sablon and Rodriguez. In turn, on June 13, 2016, Rodriguez made an initial deposit of $8,000 to his new brokerage account. 85.
made available for trading, Rodriguez placed his first securities trade in his brokerage account, using the bulk of his total account balance to purchase 750 shares of Arden stock at approximately $9.90 per share for a cost of about $7,400. 86.
traded, the Arden acquisition was announced and Arden’s stock price jumped. The next morning, on June 17, 2016, Rodriguez sold his shares of Arden stock at an average price of approximately $13.70 per share for a profit of more than $2,800. Rodriguez realized a return of more than 37% in less than four days. (Sablon also traded on the tip, realizing a quick profit of more than $6,200.) 87.
information found therein. Often, after receiving an initial tip about the acquisition of a particular Target Company and placing trades on that basis, Rodriguez or Sablon asked Rivas to provide updates about the Deal’s progress. Rivas returned to the relevant system records and communicated updated information, when available, to both Rodriguez and Sablon. 88.
largely stopped communicating by phone calls and text messages and, in mid-2016, cut off phone communications. Going forward, Rivas tipped Rodriguez and Sablon at periodic inperson meetings with Rodriguez and/or Sablon and, more often, by using a smartphone messaging application (the “App”) to send encrypted, self-destructing messages. Through the App, Rivas sent Sablon and Rodriguez messages informing them of material nonpublic information Rivas had gleaned from the Bank computer system, including the names of target and acquiring companies, deal prices, and expected announcement dates. Using the same App, Rodriguez and Sablon kept Rivas apprised of their trading activity by sending him screenshots of their brokerage accounts. 89.
purported research on the Target Companies to create a bogus paper trail of supposed legitimate bases for the illegal trading. Rodriguez and Sablon also each provided alternative reasons for their trades during calls with their respective brokerage firms. 90.
with the knowledge that Rodriguez was also relaying each tip to Sablon. After Rivas tipped Rodriguez, Sablon sent Rivas messages through the App attaching screenshots from his brokerage account that showed trades Sablon had placed on the basis of Rivas’s tips. 91.
the Odin account based on tips from Rivas. (Sablon also continued to trade in the brokerage account in his name.) 92.
Inc. (“Blackbourne”), a Florida corporation. Rodriguez is the owner of Blackbourne. Later in August 2016, Rodriguez established a brokerage account in Blackbourne’s name, subsequently transferred the securities held in the brokerage account in his name to the Blackbourne account, and, after September 2016, traded in the Blackbourne account based on tips from Rivas. 93.
traders. Their inexperience notwithstanding, to maximize their profits, both Rodriguez and Sablon frequently placed complicated trades in out-of-the-money call options of the Target Companies. Rivas helped Rodriguez and Sablon with their options trades. Rivas conducted research on the Internet to select particular series of options based on material nonpublic information in the System regarding the Target Companies and passed advice along to Rodriguez and Sablon. 94.
B, at least five were pursued through tender offers. While in possession of inside information from Rivas, Rodriguez and Sablon each repeatedly purchased the securities of the Target Companies sought to be acquired in the tender offers. Rodriguez Tipped RR Friend 95.
began relaying Rivas’s tips to Rodriguez’s friend and colleague, RR Friend. Rodriguez and RR Friend work closely together as executives at a small tutoring company owned by RR Friend. Both before the scheme and after the scheme was underway, Rodriguez and RR Friend communicated by phone almost every day (and often multiple times a day). 96.
Target Companies through phone calls and text messages. 97.
Prior to opening the brokerage account, RR Friend was not an experienced trader.
Despite his inexperience, trading in close parallel to Rodriguez on the basis of the tips, RR Friend repeatedly realized exceptional returns by placing trades in the stock and options of Target Companies shortly in advance of public news that they were being acquired. 98.
least two were pursued through tender offers. Rodriguez tipped RR Friend under circumstances in which it was reasonably foreseeable that the communication was likely to result in the purchase and sale of the securities of the two Target Companies sought to be acquired in the tender offers. F.
Tipping Chain #3: Rivas Tipped Zoquier 99.
from the Bank with his close friend Zoquier. From that time until early 2017, Zoquier, as set forth in Appendix B, repeatedly placed timely and profitable trades in the stock of Target Companies in advance of market-moving public news about the Deals. 100.
basis of material nonpublic information from Rivas. When news about the Deals was made public and the stock prices of Target Companies increased, Zoquier disposed of his securities for substantial profits. Overall, Zoquier realized over $30,000 in profits by trading on the basis of Rivas’s tips. For More Than One Year, Zoquier Repeatedly Engaged in Insider Trading 101.
Zoquier lived near one another in New Jersey and socialized frequently. At one point, Rivas purchased an engagement ring for Zoquier to use in an upcoming marriage proposal. Starting in at least late 2015, Rivas passed to Zoquier material nonpublic information about the Deals. 102.
confidential information along to his close friend Rogiers). After a few months, Zoquier decided to capitalize on Rivas’s valuable inside information and, in March 2016, he opened a joint brokerage account in his own name and in the name of his cousin. 103.
on the basis of material nonpublic information provided by Rivas. As with Rodriguez and Sablon, Rivas primarily tipped Zoquier through encrypted self-destructing messages sent through the App. Zoquier used the App because Zoquier thought it would allow him and Rivas to communicate without creating evidence of the scheme. 104.
repeatedly accessed system records and tipped Zoquier to material nonpublic information found therein regarding numerous impending Deals. Rivas passed the information for the purpose of helping Zoquier financially and expected that Zoquier would capitalize on the valuable tips. Zoquier knew that Rivas worked for the Bank and that the confidential information Rivas provided came from the Bank. 105.
were pursued through tender offers. While in possession of inside information from Rivas, Zoquier repeatedly purchased the securities of the Target Companies sought to be acquired in the tender offers. G.
Tipping Chain #3 (Second-Level): Zoquier Tipped Rogiers 106.
realized total profits of more than $130,000 by trading in the stock and options of three Target Companies. 107.
began personally trading on the basis of Zoquier’s tips. In total, Rogiers realized over $50,000 in profits by personally trading in the stock and options of four Target Companies as set forth in Appendix B. For More Than One Year, Rogiers Repeatedly Engaged in Insider Trading 108.
and during the insider trading scheme, Zoquier and Rogiers communicated by phone. Before the insider trading scheme began, Rivas and Rogiers knew one another through their mutual friend Zoquier and sometimes communicated by phone. 109.
Rogiers to explore whether Rogiers might be interested in receiving confidential information about the Deals. During the meeting, Rivas explained that, through his role at the Bank, he had access to inside information regarding impending mergers and acquisitions and offered to provide tips to Rogiers. Rivas did not, however, tip Rogiers to any particular Deals during the meeting. 110.
than a year, Rivas tipped Zoquier to numerous potential Deals. Zoquier, in turn, repeatedly passed the confidential information to Rogiers. On several occasions, Rogiers used the information to tip JR Friend 1 and JR Friend 2 to trade in the securities of Target Companies. In addition to tipping, Rogiers also asked JR Friend 1 and JR Friend 2, who had more experience trading than Rogiers, for advice on trading strategies. 111.
Rogiers. Rogiers, in turn, tipped JR Friend 1 and JR Friend 2 to trade in Monsanto securities. Prior to receiving the tip, neither JR Friend 1 nor JR Friend 2 had any recent history trading in Monsanto securities. After receiving the tip from Rogiers, JR Friend 1 and JR Friend 2 each purchased short-term, out-of-the-money Monsanto call options, thereby wagering that Monsanto’s stock price would soon increase substantially. 112.
Monsanto acquisition became public, Monsanto’s stock price ranged from approximately $89 to $94 per share. Between April 27 and May 3, 2016, on the basis of the tip from Rogiers, JR Friend 2 purchased numerous Monsanto call options with expiration dates of June 17, 2016 and July 15, 2016 and strike prices ranging from $105 to $110. Between May 5, 2016 and May 20, 2016, on the basis of the tip from Rogiers, JR Friend 1 purchased numerous Monsanto call options with expiration dates from May 20, 2016 to June 17, 2016 and strike prices ranging from $94 to $105. After news about the potential acquisition reached the public in May 2016, JR Friend 1 and JR Friend 2 sold their Monsanto options, collectively realizing profits of more than $225,000. 113.
Rogiers began using the tips he received from Zoquier to trade for himself. One of the most profitable illegal tips Rogiers received related to the impending acquisition of Medivation, Inc. (“Medivation”). In late July of 2016, Rivas repeatedly viewed a record in the Bank computer system regarding the potential acquisition of Medivation. After accessing the record, Rivas passed to Zoquier confidential information regarding the Deal. Zoquier, in turn, passed inside information about the Deal to Rogiers. 114.
Both Rogiers and Zoquier traded profitably on the basis of the Medivation tip.
22, 2016, the transaction was announced to the public and, by the close of the market, Medivation’s stock price had increased by almost 20% from the close of the prior day’s trading. The day of the announcement, Rogiers sold his Medivation call options, realizing a profit of more than $26,000, which represented an approximately 650% return. Zoquier also sold his Medivation stock for a profit of more than $5,000. 115.
were pursued through tender offers. While in possession of this inside information, Rogiers purchased the securities of two of the Target Companies sought to be acquired in these tender offers. Rogiers also tipped JR Friend 1 to trade in the securities of at least two of the Target Companies sought to be acquired in these tender offers under circumstances in which it was reasonably foreseeable that the communication was likely to result in the purchase and sale of the securities of the Target Companies sought to be acquired in the tender offers. H.
Defendants Repeatedly Engaged in Parallel Insider Trading 116.
in this Complaint, some of the traders were unaware of the existence or activities of other traders. Because they all repeatedly traded on the basis of the same inside information that had originated from Rivas, however, as set forth in Appendix B, the traders commonly traded in the securities of the same Target Companies during the same periods. During the initial phase of the scheme, Moodhe and Siva commonly traded in parallel on the basis of the tips. Beginning in late 2015, when Rivas began tipping Rodriguez, Sablon, and Zoquier, the traders frequently traded in lock step with one another. The breadth of this parallel insider trading is set forth in Appendix B; one illustrative example is detailed in the paragraphs below. 117.
billion. After reviewing the record, Rivas passed confidential information about the Panera acquisition to Moodhe, Rodriguez, and Sablon. Rodriguez, in turn, tipped RR Friend to trade in Panera securities. 118.
recently traded in Panera securities. On the basis of the tip, between March 29 and March 31, 2017, Moodhe, Rodriguez, Sablon, and RR Friend each purchased short-term, out-of-the-money Panera call options. 119.
220 Panera call options with a strike price of $280 and an expiration date of April 21, 2017 for a total cost of about $25,000. (Rodriguez also purchased Panera stock on the basis of the tip.) Trading in the Odin brokerage account and the brokerage account in his name, Sablon purchased 192 Panera call options with strike prices ranging from $275 to $290 and an expiration date of April 21, 2017 for a total cost of about $36,000. Likewise, on the basis of the tip passed by Rodriguez, RR Friend purchased 14 Panera call options with strike prices of $275 to $280 and an expiration date of April 21, 2017 for a total cost of about $2,700. 120.
term, out-of-the-money Panera call options with the same expiration date. Specifically, on March 31, 2017, Moodhe bought 25 Panera call options with a strike price of $290 per share and an expiration date of April 21, 2017 at a total cost of about $2,500. 121.
Panera’s stock was trading in an approximate range of $255 to $261 per share. By purchasing the out-of-the-money options, the traders wagered that Panera’s stock price would increase substantially—by between approximately 5% and 13%, depending on the particular series of options—in about three weeks, when the options would expire. 122.
in the Blackbourne brokerage account for a profit of more than $670,000—a return of more than 2000% in about a week. (Rodriguez also sold Panera stock he had purchased for an additional profit of more than $15,000.) That same day, Sablon sold the Panera call options held in the brokerage account in his name and in the Odin brokerage account for a profit of more than $580,000—a return of more than 1500% in about a week. RR Friend also sold his Panera call options on April 5 for a profit of more than $46,000—a return of more than 1700% in about a week. On April 6, 2017, Moodhe sold his Panera call options for a profit of more than $51,000. FIRST CLAIM FOR RELIEF Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder (Against All Defendants) 123.
122 above as if they were fully set forth herein. 124.
confidential. Information about the Deals was maintained as confidential by the Bank, which had policies to protect its confidential information and the information of its clients. Rivas learned the information about the Deals as a result of his employment at the Bank and knew or recklessly disregarded that he owed a fiduciary duty or obligation arising from a similar relationship of trust and confidence to the Bank to keep the information confidential and refrain from tipping the information to others. In breach of that duty, Rivas intentionally or recklessly communicated material nonpublic information to others so that they could use the information in connection with securities trading. Rivas communicated material nonpublic information to others in exchange for personal benefits or with the expectation of receiving a benefit. 125.
was disclosed or misappropriated in breach of a fiduciary duty or obligation arising from a similar relationship of trust or confidence. 126.
Zoquier, Siva, and Rogiers, directly or indirectly, in connection with the purchase or sale of securities, by the use of means or instrumentalities of interstate commerce, or of the mails, with scienter: (a) employed devices, schemes, or artifices to defraud; (b) made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and (c) engaged in acts, practices, or courses of business which operated or would operate as a fraud or deceit upon other persons, including purchasers and sellers of securities. 127.
Zoquier, Siva, and Rogiers violated and, unless restrained and enjoined, will continue to violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. SECOND CLAIM FOR RELIEF Violations of Section 14(e) of the Exchange Act and Rule 14e-3 Thereunder (Against All Defendants) 128.
127 above as if they were fully set forth herein. 129.
Company, communicated material nonpublic information relating to each of the tender offers (as detailed in Appendix B) under circumstances in which it was reasonably foreseeable that the communication was likely to result in the purchase and sale of the securities sought or to be sought by such tender offers. 130.
Zoquier, Siva, and Rogiers, prior to the public announcement of tender offers, and after a substantial step or steps to commence each of the tender offers had been taken, while in possession of material information relating to the tender offers, which information each knew or had reason to know was nonpublic and had been acquired directly or indirectly from the offering company, the issuer/Target Company, or any officer, director, partner, or employee, or other person acting on behalf of the offering company or issuer/Target Company, purchased or caused to be purchased or sold or caused to be sold (as detailed in Appendix B) the securities sought or to be sought by such tender offers. 131.
II. Permanently restraining and enjoining Defendants from violating Sections 10(b) and 14(e) ofthe Exchange Act[15 U.S.C. §§ 78j(b), 78(n)(e)] and Rules lOb-5 and 14e-3 thereunder [17 C.F.R. §§ 240.1Ob-5, 240.14e-3]. III. Ordering Defendants to disgorge, with prejudgment interest, all illicit trading profits or other ill-gotten gains received as a result ofthe actions alleged herein. IV. Ordering Defendants to pay civil penalties pursuant to Section 21A ofthe Exchange Act [15 U.S.C. § 78u-1]; and V. Granting such other and further relief as this Court may determine to be just and appropriate.
Company B was at all relevant times a Delaware corporation headquartered in the United States. At all relevant times, Company B’s common stock was registered with the Commission pursuant to Section 12(b) of the Exchange Act and traded on the NYSE.
ZS Pharma, Inc. (“ZSPH”) was at all relevant times a Delaware corporation headquartered in San Mateo, California. At all relevant times, ZSPH’s common stock was registered with the Commission pursuant to Section 12(b) of the Exchange Act and traded on NASDAQ under the ticker symbol “ZSPH.
“S” signifies trading in stock of Target Company; “O” signifies trading in options of Target Company.

References: v.

§ 78
 § 78
 § 240
 § 78
 V.