Docks: Defendants made out like bandits
Thirty people – including lawyers – have been charged in the US with a decade-long insider trading scheme that netted tens of millions of dollars in illicit profits by stealing information from top law firms.
The defendants are alleged to have used confidential information on nearly 30 merger and acquisition deals from six firms, which are not named but referred to in the indictment as being among the largest corporate law firms in the world by revenue.
Three are headquartered in New York, one in California, one in Illinois and the other in Massachusetts. As affected deals are named, however, the firms will be identifiable.
According to the FBI, attorney Nicolo Nourafchan, 43, worked at three large law firms and, together with others, accessed their computer systems to view confidential documents relating to pending acquisitions – including deals he was not working on – and then provide the “material non-public information” (MNPI) to others in exchange for kickbacks.
Mr Nourafchan and his partner Robert Yadgarov, 45, another New York attorney, “allegedly recruited other attorneys and insiders to serve as sources of inside information”.
In exchange for the MNPI, the pair allegedly paid their sources kickbacks of up to hundreds of thousands of dollars in cash.
The FBI accused them of providing the MNPI to a network of traders and middlemen whom they also enlisted to join the scheme.
The traders then executed trades, either on Mr Nourafchan and Mr Yadgarov’s behalf or on their own behalf, “in exchange for their agreement to kickback illicit trading proceeds to Nourafchan, Yadgarov, and others”.
Many traders allegedly passed the information onto other traders, again in exchange for kick-backs up the chain to its sources.
Leah Foley, US Attorney for the District of Massachusetts, said: “Our country’s financial markets and professional firms should be free from the rampant fraud and breaches of duty that these charges allege.
“The trading on unannounced financial news alleged here not only violated the securities laws, but it also took advantage of the special access and ethical duties that come with a law license.”
The defendants and other co-conspirators are alleged to have used burner phones, encrypted applications, coded language and in-person meetups where conspirators turned off their electronic devices or put them elsewhere before communicating with each other.
The FBI said: “Defendants and other co-conspirators also allegedly traded in brokerage accounts in the names of shell companies and other corporate entities, enlisted others to trade on behalf of co-conspirators, traded in others’ brokerage accounts, and traded in foreign brokerage accounts, all to try to evade the detection of US securities regulators and law enforcement.
“Conspirators allegedly transferred proceeds and kickback payments in cash and through intermediaries and shell companies, in locations like Panama and Switzerland. At times, such payments were allegedly disguised as purported ‘loans’ or business transactions.”
Ted Docks, special agent in charge of the FBI’s Boston division, said: “With today’s arrests, the FBI has dismantled a large-scale, decade-long, international organised criminal network of corporate attorneys and financial professionals who are accused of stealing and trading on material, non-public information from several of our nation’s leading law firms, including one right here in Massachusetts.
“Everyone charged today is accused of scoring significant profits from expected market moves and making out like bandits. That’s not merely gaming the system – it’s a federal crime.”
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