Source: http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340b
Timestamp: 2016-10-23 17:33:24
Document Index: 422600325

Matched Legal Cases: ['§ 78', '§ 240', '§78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 240', '§78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 240', '§ 78', '§ 240', '§ 78', '§ 240', '§ 78', '§ 78']

SEC Complaint against Jon-Paul Rorech and Renato Negrin | SEC v. Jon-Paul Rorech and Renato Negrin | Doug Cornelius - JDSupra
SEC v. Jon-Paul Rorech and Renato NegrinSEC Complaint against Jon-Paul Rorech and Renato Negrin
The Securities and Exchange Commission brought its first insider trading enforcement action involving credit default swaps. Renato Negrin, a former portfolio manager at hedge fund investment adviser Millennium Partners L.P., and Jon-Paul Rorech, a salesman at Deutsche Bank Securities Inc., are charged with insider trading in credit default swaps of VNU N.V., an international holding company that owns Nielsen Media and other media businesses.
The SEC's complaint alleges that Rorech learned information from Deutsche Bank investment bankers about a change to the proposed VNU bond offering. This change was expected to increase the price of the CDS on the VNU bonds. Rorech tipped Negrin about the contemplated change to theVNU bond offering, and Negrin then purchased CDS on VNU for a Millennium hedge fund. When news of the restructured VNU bond offering became public, the price of VNU CDS substantially increased. Negrin closed Millennium's VNU CDS position at $1.2 million profit.
"This is the first insider trading enforcement action involving credit default swaps," said Scott W. Friestad, Deputy Director of the SEC's Division of Enforcement. "As alleged in our complaint, Rorech and Negrin checked their integrity at the door and schemed to engage in insider trading of CDS to the detriment of investors and our markets."
James Clarkson, Acting Director of the SEC's New York Regional Office, added, "CDS may still be obscure to the average individual investor, but there is nothing obscure about fraudulently trading with an unfair advantage. Although CDS market participants tend to be experienced professionals, there must be a level playing field with even the most sophisticated financial instruments.
Download PDF JUDGE KOELTL UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK SECURITIES AND EXCHANGE COMMISSION, Plaintiff, '09 elY 4329 . v. : Civil Action No. 09-CVJON-PAUL RORECH and Defendants. COMPLAINT against Defendants Jon-Paul Rorech ("Rorech") and Renato Negrin (''Negrin'') (collectively, the "Defendants"), alleges as follows: This case involves unlawful insider trading conducted in credit default swaps ("CDSs") by Rorech, a bond and CDS salesman employed by Deutsche Bank Securities Inc. ("DBSI"), and Negrin, a portfolio manager employed by Millennium Partners, L.P. 2. In July 2006, by virtue of his employment at DBSI, Rorech became privy to confidential information concerning restructuring ofan upcoming bond issuance by VNU N.V. ("VNU"), a Dutch media conglomerate. This information was material to the market price ofthe separately-traded CDSs that referenced VNU bonds. Notwithstanding his duty to maintain the confidentiality ofthis material information, Rorech provided it to Negrin, who, on behalfofa hedge fund advised by Millennium, then purchased CDSs covering the VNU bonds based on that inside information. After the announcement that the bond issue would be restructured, the price M UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK SECURITIES AND EXCHANGE COMMISSION, Plaintiff, 1)9 CIV V. CivU Action No. 09-CVJON-PAUL RORECH and RENATO NEGRIN, Defendants ^ 0 5 2009 COMPLAINT Plaintiff Securities and Exchange Commission (the "Commission") for its Complain! against Defendants Jon-Paul Rorech ("Rorech") and Renato Negin ("Negrin") (collectively, the ttDefendants"), alleges as follows: 1. This case involves unlawful insider trading conducted in credit default swaps ("CDSs") by Rorech, a bond and CDS salesman employed by Deutsche Bank Securities Inc. ("DBSI"), and Negrin, a portfolio manager employed by Millennium Partners, L.P. ("Millennium"). 2. In July 2006, by virtue of his employment at DBSI, Rorech became pivy to confidential information concerning restructuring of an upcoming bond issuance by VNU N.V. ("VNU"), a Dutch media conglomerate. This information was material to the market price of the separately-traded CDSs that referenced VNU bonds. Notwithstanding his duty to maintain the confidentiality of this material information, Rorech provided it to Negrin, who, on behalf of a hedge fund advised by Millennium, then purchased CDSs covering the VNU bonds based on that inside information. Ater the announcement that the bond issue would be restructured, the price Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340bofthe CDSs Negrin had purchased rose significantly. Negrin closed Millennium's CDS position in VNU for a profit of approximately $1.2 million. 3. By the conduct alleged herein, the Defendants, directly or indirectly, have engaged, and, unless enjoined and restrained, will again engage, in transactions, acts, practices or courses of business that constitute violations of Section 1O(b) ofthe Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule lOb-5, C.F.R. § 240.lOb-5, thereunder. JURISDICTION AND VENUE 4. The Commission brings this action pursuant to its authority under Section 21(d) of the Exchange Act, 15 U.S.C. §78u(d), to enjoin the Defendants from engaging in the transactions, acts, practices, and courses ofbusiness alleged in this Complaint, for disgorgement ofprofits and prejudgment interest thereon, and for civil penalties pursuant to Section 21 (d) of the Exchange Act, 15 U.S.C. § 78u(d)(3). The Commission also brings this action pursuant to Section 21A of the Exchange Act, 15 U.S.C. § 78u-l, for civil penalties against the Defendants under the Insider Trading and Securities Fraud Enforcement Act of 1988 ("ITSFEA"). The Commission also seeks such other relief as the Court may deem appropriate. 5. This Court has jurisdiction over this action pursuant to Sections 21( 27 ofthe Exchange Act, 15 U.S.C. §§ 78u(d), 78u-l, and 78aa. 6. Certain of the alleged transactions, acts, practices, and courses of business occurred in the Southern District ofNew York, including, but not limited to, Rorech's tipping of material non-public information to Negrin. Accordingly, venue in this district is proper under Section 27 of the Exchange Act, 15 U.S.C. § 78aa. 7. By the conduct alleged in this Complaint, the Defendants, directly or indirectly, singly or in concert, made use ofthe means or instruments oftransportation or communication 2 of the CDSs Negrin had purchased rose signiicantly. Negrin closed Millennium's CDS position in VNU for a proit of approximately $1.2 million. 3. By the conduct alleged herein, the Defendants, directly or indirectly, have engaged, and, unless enjoined and restrained, will again engage, in transactions, acts, practices or courses of business that constitute violations of Section 10(b) of the Secuities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5, C.F.R. § 240.10b-5, thereunder. JURISDICTION AND VENUE 4. The Commission brings this action pursuant to its authority under Section 21(d) of the Exchange Act, 15 U.S.C. §78u(d), to enjoin the Defendants rom engaging in the transactions, acts, practices, and courses of business alleged in this Complaint, for disgorgement of proits and prejudgment interest thereon, and for civil penalties pursuant to Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d)(3). The Commission also bings this action pursuant to Section 21A of the Exchange Act, 15 U.S.C. § 78u-l, for civil penalties against the Defendants under the Insider Trading and Secuities Fraud Enforcement Act of 1988 ("ITSFEA"), The Commission also seeks such other relief as the Cout may deem appropiate. 5. This Court has jurisdiction over this action pursuant to Sections 21( 27 of the Exchange Act, 15 U.S.C, §§ 78u(d), 78u-l, and 78aa. 6. Certain of the alleged transactions, acts, practices, and courses of business occurred in the Southern Distict of New York, including, but not limited to, Rorech's tipping of mateial non-public information to Negin. Accordingly, venue in this distict is proper under Section 27 of the Exchange Act, 15 U.S.C. § 78aa. 7. By the conduct alleged in this Complaint, the Defendants, directly or indirectly, singly or in concert, made use of the means or instruments of transportation or communication 2 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340bin, or the means or instrumentalities of, interstate commerce, or ofthe mails in connection with the transactions, acts, practices, and courses of business alleged herein. 8. Rorech, age 36, lives in Brooklyn, New Rorech is employed as bond and CDS salesman at DBSI. Rorech been in the securities industry for 14 years and has Series 7 and 63 licenses. 9. Renato Negrin, age 45, resides in New York, New York. Negrin is employed as a portfolio manager at Millennium Partners, L.P., an unregistered hedge fund investment adviser Negrin is the head ofa credit trading group ofabout seven individuals. Negrin has been employed in the securities industry for over 22 years and holds a Series 7 license. ENTITIES 10. VNU is a Dutch media conglomerate that was taken private in May 2006 by a consortium ofprivate equity companies. order to finance the acquisition, VNU and its private equity owners ("financial sponsors") announced a proposed financial restructuring on July 10, which bond offering ultimately completed in August 2006. In January changed Nielsen will be VNU. 11. DBSI is a registered broker dealer and registered investment adviser located in New York, New York that served as lead underwriter for VNU's bond offering during July and August 2006. DBSI is a subsidiary of Deutsche Bank AG. 3 in, or the means or instrumentalities of, interstate commerce, or of the mails in connection with the transactions, acts, practices, and courses of business alleged herein. DEFENDANTS 8. Jon-Paul Rorech, age 36, lives in Brooklyn, New York. Rorech is employed as a bond and CDS salesman at DBSI. Rorech has been in the secuities industry for 14 years and has Seies 7 and 63 licenses. 9. Renato Negrin, age 45, resides in New York, New York. Negin is employed as a portfolio manager at Millennium Partners, L.P., an unregistered hedge fund investment adviser located in New York, New York. Negrin is the head of a credit trading group of about seven individuals. Negrin has been employed in the secuities industry for over 22 years and holds a Seies 7 license. OTHER RELEVANT ENTITIES 10. VNU is a Dutch media conglomerate that was taken pivate in May 2006 by a consortium of pivate equity companies. In order to finance the acquisition, VNU and its pivate equity owners ("inancial sponsors") announced a proposed inancial restructuing on July 10, 2006, which included a bond offeing ultimately completed in August 2006. In January 2007, VNU changed its name to the Nielsen Company, but will be referred to herein as VNU. 11. DBSI is a registered broker dealer and registered investment adviser located in New York, New York that served as lead underwiter for VNU's bond offering during July and August 2006. DBSI is a subsidiary of Deutsche Bank AG. Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340b12. CDSs are a type of credit derivative, economically similar to default insurance for a referenced debt obligation, such as a bond. The seller ofa CDS agrees to pay to the buyer of the CDS a specified (or "notional") amount ofmoney if the issuer ofthe bond referenced by the CDS defaults on its obligations. The CDS buyer, in return for that protection, pays a specified amount, or premium, to the CDS seller each quarter, during the term of the CDS contract. the event ofa default, the CDS buyer tenders defaulted bonds (or their cash equivalent) to the CDS seller in exchange for the full notional amount ofthe CDS. 13. CDSs are bilateral contracts traded over the counter, not on registered exchanges. CDSs are priced and traded based on their market value at the time ofthe trade, and are quoted in basis points. CDSs may be and are separately traded from the debt obligations that they ofthe debt obligation 14. One factor affecting the price ofCDSs referencing the VNU bonds in July 2006 was the limited supply ofbonds covered by (or, "deliverable into") those CDSs. An increase in the supply ofVNU bonds deliverable into CDSs would result in an increase in exposure and demand for CDSs covering the default of such bonds and, therefore, an increase in the market price for CDSs referencing those bonds. 15. On July to, 2006, VNU announced a new financing structure to fund the recent takeover ofVNU. The announced structure was to include $1.67 billion ofdebt issued by subsidiaries, Nielsen Finance and e'Nielsen"). 16. At the time ofthe July 10 announcement, the only VNU-related CDSs available in the market referenced bonds issued, not from Nielsen, but from the holding company, VNU. Background 12. CDSs are a type of credit deivative, economically similar to default insurance for a referenced debt obligation, such as a bond. The seller of a CDS agrees to pay to the buyer of the CDS a speciied (or "notional") amount of money if the issuer of the bond referenced by the CDS defaults on its obligations. The CDS buyer, in return for that protection, pays a speciied amount, or premium, to the CDS seller each quarter, duing the term of the CDS contract. In the event of a default, the CDS buyer tenders defaulted bonds (or their cash equivalent) to the CDS seller in exchange for the iill notional amount of the CDS. 13. CDSs are bilateral contracts traded over the counter, not on registered exchanges. CDSs are piced and traded based on their market value at the time of the trade, and are quoted in basis points. CDSs may be and are separately traded rom the debt obligations that they reference, without any purchase or sale of the referenced debt obligation required. 14. One factor affecting the pice of CDSs referencing the VNU bonds in July 2006 was the limited supply of bonds covered by (or, "deliverable into") those CDSs. An increase in the supply of VNU bonds deliverable into CDSs would result in an increase in exposure and demand for CDSs coveing the default of such bonds and, therefore, an increase in the market pice for CDSs referencing those bonds. 15. On July 10,2006, VNU announced a new inancing structure to fund the recent takeover of VNU. The announced structure was to include $1.67 billion of debt issued by VNU's subsidiaies, Nielsen Finance LLC and Nielsen Finance Co. ("Nielsen"). 16. At the time of the July 10 announcement, the only VNU-related CDSs available in the market referenced bonds issued, not rom Nielsen, but rom the holding company, VNU. 4 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340bThese existing CDSs did not appear to the market to provide coverage for a default of the newlyannounced Nielsen bonds. 17. response to perceived market demand for VNU debt obligations that would be covered by, or "deliverable into" VNU CDSs, DBSI, as the lead underwriters for the bond offering, began to explore, at least as early as July 12,2006, different ways ofresponding to the market's concerns about the lack ofbonds covered by existing VNU CDSs. 18. discussions included the possibility ofadding a new layer (or ''tranche'') of bonds issued from the VNU holding company that would be covered by the existing CDSs. 19. DBSI bankers in New York led the effort to create a tranche ofholding company bonds. 20. DBSI bankers continuously communicated with the fmancial sponsors about issuing holding company bonds from July 12 until July 24,2006, when it was publicly that VNU be ofbonds ofthe 21. During the period before the July 24 announcement, DBSI employees were aware that information concerning the restructuring ofthe Nielsen bond offering to address deliverability ofthe new bonds into the CDSs would impact the market price for VNU CDSs. 22. These discussions, and the fmancial restructuring ultimately decided upon by DBSI and the VNU financial sponsors, materially affected the pricing for the CDSs referencing VNU bonds. After the announcement, the CDS prices substantially increased, accounting for the ofthe that the CDSs would be providing for the VNU CDS bonds before the announcement would have seen in the market value ofthose CDS holdings, as the pricing for such CDSs rose after the July 24 announcement. These existing CDSs did not appear to the market to provide coverage for a default of the newlyannounced Nielsen bonds. 17. In response to perceived market demand for VNU debt obligations that would be covered by, or "deliverable into" VNU CDSs, DBSI, as the lead underwiters for the bond offeing, began to explore, at least as early as July 12,2006, different ways of responding to the market's concerns about the lack of bonds covered by existing VNU CDSs. 18. These discussions included the possibility of adding a new layer (or "tranche") of bonds issued rom the VNU holding company that would be covered by the existing CDSs. 19. DBSI bankers in New York led the effort to create a tranche of holding company bonds. 20. DBSI bankers continuously communicated with the inancial sponsors about issuing holding company bonds rom July 12 until July 24,2006, when it was publicly announced that VNU would be issuing a tranche of bonds out of the holding company. 21. During the peiod before the July 24 announcement, DBSI employees were aware that information concerning the restructuring of the Nielsen bond offering to address deliverability of the new bonds into the CDSs would impact the market pice for VNU CDSs. 22. These discussions, and the inancial restructuring ultimately decided upon by DBSI and the VNU inancial sponsors, mateially affected the picing for the CDSs referencing VNU bonds. Ater the announcement, the CDS pices substantially increased, accounting for the cost of the protection that the CDSs would be providing for the VNU bonds. A trader who had purchased a CDS referencing VNU bonds before the announcement would have seen an increase in the market value of those CDS holdings, as the picing for such CDSs rose ater the July 24 announcement. 5 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340b14 Concerning VNU's Financial the VNU restructuring confidential. as ofJuly 2006, prohibited Rorech from disclosing confidential offering restructuring. Accordingly, Rorech had a duty to keep information he learned bond restructuring confidential. 24. DBSI's written Confidential and Inside in effect at the relevant Confidential information proprietary information, customer of from a party with the expectation that it will confidential. Employees that all information acquired in connection with responsibilities at DBUS (including its affiliates from clients and business is confidential unless 25. of confidential under ''customer orders" and "[c]ompany information which information Bank's and operations, [and] its clients (including any information ...." 26. communication ofconfidential informationto anyone to know. from such information plans to issue securities or derivatives who 27. had received training on confidential inside information from DBSI, and from two employers previous From July 14 to July 21, Rorech Obtained Confidential and Material Information Concerning VNU'g Financial Restructuring 23. Information concerning the VNU restructuing was confidential. DBSI's policies, in place as of July 2006, prohibited Rorech rom disclosing conidential information concerning the bond offeing restructuing. Accordingly, Rorech had a duty to keep information he learned about the bond restructuring conidential. 24. For example, DBSFs witten Conidential and Inside Information Policy (the "Policy"), in effect at the relevant time, provided as follows: Conidential information is propietary information, customer information, or any other type of information provided by or obtained rom a third party with the expectation or contractual agreement that it will remain conidential. Employees should presume that all business information acquired in connection with their day-to-day responsibilities at DBUS (including its afiliates and subsidiaries), rom its clients and in connection with business transactions is conidential unless the information is already in the public domain. 25. Examples of conidential information under the Policy include "pending or contemplated customer orders" and "[c]ompany information which includes information concerning Deutsche Bank's business and operations, [and] its clients (including any information given the Company by its clients) » 26. The Policy prohibited the communication of conidential information to anyone without a legitimate need to know. The Policy further precluded its employees rom disclosing or tipping inside information, such as information about plans to issue secuities or deivatives thereof, to someone else who trades on it. 27. By July 2006, Rorech had received training on conidential and inside information rom DBSI, and rom two employers previous to DBSI. 6 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340b28. The engagement letter between DBSI and VNU included a confidentiality provision to protect against disclosure ofconfidential information. The confidentiality provision required DBSI to use all non-public information shared with it solely for providing underwriting services. 29. Between July 10 and the morning of July 17,2006, Rorech was in daily communications with a DBSI fixed income banker and others. In these communications, Rorech was provided with confidential information about the proposed restructuring. This included, among other things, information concerning (i) the financial sponsors' communications with DBSI, (ii) orders and indications ofinterest by DBSI's customers for a new holding company tranche ofbonds deliverable into CDSs, and (iii) DBSl's advice and recommendations to the financial sponsors concerning the issuance ofbonds deliverable into CDSs. 30. The confidential information Rorech obtained in these communications confirmed to that DBSI would be recommending to VNU that it issue a holding company tranche of bonds deliverable into CDSs, and that VNU would likely adopt that recommendation. During the week ofJuly 17, Rorech continued to receive information consistent with the foregoing. 31. This non-public information was material to the market pricing for CDSs that referenced VNU's bonds. His Duty to DBSI By Tipping Confidential Information Regarding the Restructuring 32. From July 14 through July 17,2006, Rorech had a series ofcommunications with Negrin, in which he tipped Negrin to the confidential information that DBSI would be recommending to the financial sponsors that VNU issue a tranche of bonds out ofthe VNU holding company that would be deliverable into CDSs, that it was likely the sponsors would do so, and that DBSI had $200 million worth ofcustomer orders for and interest in that tranche. 7 28. The engagement letter between DBSI and VNU included a conidentiality provision to protect against disclosure of conidential information. The conidentiality provision required DBSI to use all non-public information shared with it solely for providing underwiting services. 29. Between July 10 and the morning of July 17,2006, Rorech was in daily communications with a DBSI ixed income banker and others. In these communications, Rorech was provided with conidential information about the proposed restructuring. This included, among other things, informaion concerning (i) the inancial sponsors' communications with DBSI, (ii) orders and indications of interest by DBSI's customers for a new holding company tranche of bonds deliverable into CDSs, and (iii) DBSFs advice and recommendations to the financial sponsors concerning the issuance of bonds deliverable into CDSs. 30. The conidential information Rorech obtained in these communications conirmed to him that DBSI would be recommending to VNU that it issue a holding company tranche of bonds deliverable into CDSs, and that VNU would likely adopt that recommendation. Duing the week of July 17, Rorech continued to receive information consistent with the foregoing. 31. This non-public information was mateial to the market picing for CDSs that referenced VNU's bonds. Rorech Breached His Duty to DBSI By Tipping Negrin Conidential Information Regarding the Restructuring 32. From July 14 through July 17,2006, Rorech had a seies of communications with Negrin, in which he tipped Negin to the conidential information that DBSI would be recommending to the inancial sponsors that VNU issue a tranche of bonds out of the VNU holding company that would be deliverable into CDSs, that it was likely the sponsors would do so, and that DBSI had $200 million woth of customer orders for and interest in that tranche. 7 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340b33. This non-public information assured Negrin that he would profit by buying CDSs that referenced VNU bonds before the public announcement ofthat tranche, and then selling those CDSs after VNU announced the restructuring, and the demand (and price) for those CDSs increased. 34. On the morning of July 14, Rorech, after inquiring as to Negrin's interest in trading CDSs that reference VNU bonds, told Negrin on a recorded telephone line that the odds were "very good" that VNU would be issuing bonds at the holding company level. When Negrin asked Rorech for some way to assess and "handicap" that probability, Rorech paused, and responded, "you're listening to my silence, right?" Negrin then replied, "OK, I'll call you back," and Rorech and Negrin ended the recorded telephone call. Immediately thereafter, Negrin and Rorech conducted an unrecorded three-minute phone conversation on their cell phones. 35. Rorech and Negrin spoke again at approximately 10:50 am on Monday, July 17. Negrin called Rorech on a recorded line, and said he "want[ed] to talk about that other situation." After confirming that Negrin was referring to VNU, Rorech responded "call my cell." Immediately thereafter, Negrin placed an unrecorded 4-minute call from his cell to Rorech's cell. 36. During these and other conversations during this time period, Rorech solicited and encouraged Negrin to purchase VNU CDSs based on this nonpublic information, with the understanding that the price ofCDSs would increase substantially once the new tranche was announced. 37. On July 20, Negrin and Rorech spoke on a recorded line and Rorech told Negrin that the price ofVNU CDSs was "IS wider in London" that morning, and that "things seem to be, 00, you know, going okay with the structure ... so I think we'll, 00, 00, I'm hoping next 33. This non-public information assured Negrin that he would proit by buying CDSs that referenced VNU bonds before the public announcement of that tranche, and then selling * those CDSs ater VNU announced the restructuring, and the demand (and pice) for those CDSs increased. 34. On the morning of July 14, Rorech, ater inquiring as to Negin's interest in trading CDSs that reference VNU bonds, told Negrin on a recorded telephone line that the odds were "very good" that VNU would be issuing bonds at the holding company level. When Negrin asked Rorech for some way to assess and "handicap" that probability, Rorech paused, and responded, "you're listening to my silence, ight?" Negin then replied, "OK, I'll call you back," and Rorech and Negrin ended the recorded telephone call. Immediately thereater, Negrin and Rorech conducted an unrecorded three-minute phone conversation on their cell phones. 35. Rorech and Negrin spoke again at approximately 10:50 am on Monday, July 17. Negrin called Rorech on a recorded line, and said he *Svant[ed] to talk about that other situation.« Ater conirming that Negin was refering to VNU, Rorech responded "call my cell.» Immediately thereater, Negrin placed an unrecorded 4-minute call rom his cell to Rorech's cell. 36. During these and other conversations during this time peiod, Rorech solicited and encouraged Negin to purchase VNU CDSs based on this nonpublic information, with the understanding that the pice of CDSs would increase substantially once the new tranche was announced. 37. On July 20, Negin and Rorech spoke on a recorded line and Rorech told Negrin that the pice of VNU CDSs was "15 wider in London" that morning, and that "things seem to be, uh, you know, going okay with the structure... so I think we'll, uh, uh, I'm hoping next 8 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340bweek we'll have a defInitive answer." Negrin said "Okay. So they're going okay?" Rorech replied, "Uh-hum" and Negrin said "Okay, excellent." 38. The foregoing communications constituted a breach by Rorech ofthe duty he owed to DBSI not to disclose the confIdential information described above. 39. Rorech and Negrin both understood that information concerning the restructuring ofthe Nielsen offering that resulted in bonds deliverable into VNU CDSs would, when it became public, increase CDS prices. 40. The information Rorech and Negrin were discussing the week ofJuly 17 concerning the restructuring was non-public because the information had not been broadly disseminated to the investing public generally and was not reflected in the price of the VNU CDSs. 41. Rorech received a benefIt from tipping Negrin because the tip solidifIed his client relationship with Negrin. Rorech also received credit from DBSI toward his compensation for trades placed by his clients, including Negrin's CDS trades with DBSI. Confidential Rorech Had Provided to 42. After the call between Rorech and Negrin on July 17, Negrin, between 12:30 and 1:00 p.m. that same day, placed an order with DBSI for €1O million worth ofVNU CDS at 383 basis points, on behalf of a hedge fund advised by Millennium. On July 18, Negrin bought €1 0 million more VNU CDS from another dealer at 383 basis points, on behalf of a hedge fund advised by Millennium. 43. After the July 24, 2006 public announcement that VNU would be issuing bonds at the holding company level, and which would be deliverable into CDSs, the price ofCDSs referencing the VNU bonds rose substantially. 9 week we'll have a deinitive answer." Negrin said "Okay. So they're going okay?" Rorech replied, "Uh-hum" and Negin said "Okay, excellent.»> 38. The foregoing communications constituted a breach by Rorech of the duty he owed to DBSI not to disclose the conidential information descibed above. 39. Rorech and Negin both understood that information concerning the restructuring of the Nielsen offeing that resulted in bonds deliverable into VNU CDSs would, when it became public, increase CDS pices. 40. The information Rorech and Negin were discussing the week of July 17 concerning the restructuing was non-public because the information had not been broadly disseminated to the investing public generally and was not reflected in the pice of the VNU CDSs. 41. Rorech received a beneit rom tipping Negrin because the tip solidiied his client relationship with Negrin. Rorech also received credit rom DBSI toward his compensation for trades placed by his clients, including Negrin's CDS trades with DBSI. Negrin Traded on the Conidential and Material Information Rorech Had Provided to Him 42. Ater the call between Rorech and Negrin on July 17, Negrin, between 12:30 and 1:00 p.m. that same day, placed an order with DBSI for €10 million woth of VNU CDS at 383 basis points, on behalf of a hedge fund advised by Millennium. On July 18, Negrin bought €10 million more VNU CDS rom another dealer at 383 basis points, on behalf of a hedge fund advised by Millennium. 43. Ater the July 24,2006 public announcement that VNU would be issuing bonds at the holding company level, and which would be deliverable into CDSs, the pice of CDSs referencing the VNU bonds rose substantially. 9 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340b44. Following the July 24, 2006 announcement, Negrin sold the VNU CDS for a profit ofalmost €950,000, approximately $1.2 million at the exchange rate at the time. In a conversation with Rorech on July 24, Negrin expressed his gratitude to him. 45. Rorech and Negrin, when discussing information about the VNU financial restructuring, repeatedly switched from recorded telephone lines to unrecorded cell phone communications. Rorech knew that the information he was providing to Negrin concerning the restructuring was material, nonpublic and provided in breach of Rorech's duties to his employer. Rorech was aware ofDBSI's policies concerning the treatment ofconfidential information, and knew that the information he had imparted to Negrin was confidential. Indeed, Rorech knew that as ofJuly 12, he was specifically restricted by DBSI from soliciting trades in, for example, VNU CDSs. 46. Negrin also knew or should have known that Rorech provided him with information concerning the restructuring in breach ofduties owed to DBSI. 47. Negrin has been working in the securities industry in various capacities since 1986. From his long experience in the securities industry, Negrin was familiar with standard controls concerning confidentiality obligations with regard to material nonpublic information. In addition, Negrin received compliance training during the course ofhis employment with Millennium, and affirmed each year that he read Millennium's compliance policy. 48. Negrin knew that Rorech was employed by the lead underwriter on the bond offering, and privy to nonpublic information concerning the restructuring. For this reason, Negrin sought from Rorech, and Rorech provided, concrete facts concerning the restructuring so that Negrin could profit from CDS trading. 10 44. Following the July 24,2006 announcement, Negrin sold the VNU CDS for a proit of almost €950,000, approximately $1.2 million at the exchange rate at the time. In a conversation with Rorech on July 24, Negin expressed his gratitude to him. 45. Rorech and Negin, when discussing information about the VNU inancial restructuing, repeatedly switched rom recorded telephone lines to unrecorded cell phone communications. Rorech knew that the information he was providing to Negrin concerning the restructuring was mateial, nonpublic and provided in breach of Rorech's duties to his employer. Rorech was aware of DBSI's policies concerning the treatment of conidential information, and knew that the information he had imparted to Negin was conidential. Indeed, Rorech knew that as of July 12, he was speciically resticted by DBSI rom soliciting trades in, for example, VNU CDSs. 46. Negrin also knew or should have known that Rorech provided him with information concerning the restructuing in breach of duties owed to DBSI. 47. Negin has been working in the secuities industry in vaious capacities since 1986. From his long expeience in the secuities industry, Negrin was familiar with standard controls concerning conidentiality obligations with regard to mateial nonpublic information. In addition, Negin received compliance training duing the course of his employment with Millennium, and afirmed each year that he read Millennium's compliance policy. 48. Negrin knew that Rorech was employed by the lead underwiter on the bond offering, and pivy to nonpublic information concerning the restructuing. For this reason, Negin sought rom Rorech, and Rorech provided, concrete facts concerning the restructuing so that Negin could proit rom CDS trading. 10 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340bIn Based 49. in as security-based swap agreements the Gramm-Leach-Bliley Act of2002 and are therefore subject to the antifraud provisions set in Section 1O(b) ofthe Exchange Act and the rules promulgated thereunder. FOR RELIEF of Section lO(Act lOb-thereunder 50. The Commission realleges and incorporates by reference each and every through 49, inclusive, if fully 51. and Negrin, in described or recklessly, in connection with the purchase sale securities-based directly by the use ofthe a. schemes or artifices to defraud; b. untrue statements ofmaterial or omitted to material in made, in light of the circumstances c. engaged in acts, practices, or courses of business which operated or would as a fraud in ofany security. 11 Rorech's Breach Was In Connection With the Purchase or Sale of Security-Based Swap Agreements 49. The CDSs at issue in this matter qualify as secuity-based swap agreements under the Gramm-Leach-Bliley Act of 2002 and are therefore subject to the antiraud provisions set forth in Section 10(b) of the Exchange Act and the rules promulgated thereunder. CLAIM FOR RELIEF Violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder 50. The Commission realleges and incorporates by reference each and every allegation in paragraphs 1 through 49, inclusive, as if they were fully set forth herein. 51. Defendants Rorech and Negrin, by engaging in the conduct descibed above, knowingly or recklessly, in connection with the purchase or sale of secuities-based swap agreements, directly or indirectly, by the use of the means or instrumentalities of interstate commerce, or the mails: a. employed devices, schemes or artiices to deraud; b. made untrue statements of mateial facts or omitted to state mateial facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and/or c. engaged in acts, practices, or courses of business which operated or would operate as a raud or deceit upon any person in connection with the purchase or sale of any secuity. 11 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340b52. By engaging in the foregoing conduct, Defendants Rorech and Negrin violated Section 1O(b) ofthe Exchange Act, 15 U.S.C. 78j(b), and Rule IOb-5, 17 C.F.R. § 240.lOb-5, thereunder. 53. the Commission respectfully requests that this Court enter a Final Judgment: I. Permanently restraining and enjoining Defendants Rorech and Negrin from violating Section 1O(b) ofthe Exchange Act, 15 U.S.C. 78j(b), and Rule IOb-5, 17 C.F.R. 240.10b-5, thereunder; II. Ordering Defendants Rorech and Negrin to disgorge all unlawful trading profits that were derived from the activities set forth in this Complaint, together with prejudgment interest thereon; III. Ordering that Defendants Rorech and Negrin be held jointly and severally liable for disgorgement plus prejudgment interest; Ordering Defendants Rorech and Negrin to pay civil penalties pursuant to Section 21A of the Exchange Act, 15 U.S.C. 78u-l, or in the alternative, Section 21 (d)(3) of the Exchange Act, 15 U.S.C. 78u; and 12 52. By engaging in the foregoing conduct, Defendants Rorech and Negrin violated Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5,17 C.F.R. § 240.10b-5, thereunder. PRAYER FOR RELIEF 53. WHEREFORE, the Commission respectfully requests that this Cout enter a Final Judgment: L Permanently restraining and enjoining Defendants Rorech and Negin rom violating Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5,17 C.F.R. § 240.10b-5, thereunder; IL Ordering Defendants Rorech and Negrin to disgorge all unlawful trading proits that were deived rom the activities set forth in this Complaint, together with prejudgment interest thereon; III. Ordering that Defendants Rorech and Negrin be held jointly and severally liable for disgorgement plus prejudgment interest; IV. Ordering Defendants Rorech and Negrin to pay civil penalties pursuant to Section 21A of the Exchange Act, 15 U.S.C. § 78u-l, or in the alternative, Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u; and 12 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340bv. Granting such other and further relief as the Court may deem just and appropriate. Dated: New York, New York May 5, 2009 SECURITIES AND EXCHANGE COMMISSION BY: ------J~---=---+~=----Bruce Karpati K-4671) Assistant Regional Director Attorney for Plaintiff New York Regional Office 3 World Financial Center, Room 400 New York, New York 10281 336-Of Counsel: Richard G. Primoff Kay Lackey (not admitted in NY) Stephanie Shuler Israel Friedman Panayiota K. Bougiamas 13 V. Granting such other and further relief as the Court may deem just and appropiate Dated: New York, New York May 5,2009 SECURITIES AND EXCHANGE COMMISSION BY: Bruce Karpati^K-4671) Assistant Regional Director Attorney for Plaintiff New York Regional Ofice 3 World Financial Center, Room 400 New York, New York 10281 (212) 336-1100 Of Counsel: Richard G. Primoff Kay Lackey (not admitted in NY) Stephanie Shuler Israel Friedman Panayiota K. Bougiamas 13 Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=330f7654-03b5-4ed4-a758-1d2d7654340b
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