IF YOU’RE a fan of crime and spy novels like I am, you’ll love the Securities and Exchange Commission’s news release and subsequent media coverage about yesterday’s bust in the TXU insider-trading case.
The full release is here, but I’m reproducing some highlights below:
The Securities and Exchange Commission today charged Hafiz Naseem, an investment banker with Credit Suisse (USA) LLC, with illegally divulging non-public information to a person believed to be a banker in Pakistan concerning the leveraged buyout of TXU Corp. by an investor group led by Kohlberg Kravis Roberts & Co. and Texas Pacific Group. Naseem misappropriated the information from his employer, Credit Suisse, which served as a financial advisor to TXU in connection with the buyout.
The Commission originally filed a complaint in the U.S. District Court for the Northern District of Illinois on March 2, 2007, alleging insider trading ahead of the TXU buyout against Certain Unknown Purchasers of TXU Call Options. Today, the Commission amended its complaint to name Naseem as a defendant. The Commission’s Second Amended Complaint alleges that Naseem, in breach of his duty to Credit Suisse and its client TXU, telephoned the Pakistani banker on several occasions in February 2007 and disclosed non-public, material information about the proposed but unannounced TXU buyout. The Pakistani banker allegedly traded on the inside information provided by Naseem and reaped millions of dollars in profits when the buyout was publicly announced. In addition to tipping at least one of the traders in the TXU case, the SEC alleges that Naseem tipped the Pakistani banker and possibly others concerning eight additional mergers or business deals since joining Credit Suisse’s New York office in March 2006.
I particularly liked this quote in the release:
Katherine S. Addleman, Associate Regional Director of the SEC’s Fort Worth Regional Office, added, “This action and the continuing investigation into the tipping by Naseem is a remarkable example of the public and private sector working together to unravel a complex web of international insider trading. The SEC is especially appreciative of the tremendous assistance provided by Credit Suisse in the process of identifying Naseem and the cooperation afforded by the NYSE, Chicago Board Options Exchange, the Swiss Federal Banking Commission and the Financial Services Authority of the United Kingdom in helping to piece together evidence from across the globe, such as phone and brokerage records, to uncover Naseem’s unlawful insider trading.”
The international cooperation and speed displayed in this case is impressive. The New York Times calls the case “remarkable” and provides some great color around the arrest of Naseem, 37, by the FBI in New York yesterday.
Mr. Naseem, a native of Pakistan who lives in Rye Brook, N.Y., was arrested late yesterday at Credit Suisse offices at Madison Square Park in the Flat Iron District after returning to work from a personal trip to Pakistan, according to people close to the situation.
He was taken to the Federal Bureau of Investigation’s offices in Lower Manhattan, where he emerged, clad in a dark slacks and white shirt, as he was transported to a federal jail in Brooklyn.
His desk at Credit Suisse was near a printer that turned out documents with information about potential deals for both his group and for others, investigators said.
Mr. Naseem authorized the Pakistani banker, who is identified in the criminal complaint as “co-conspirator 1” to operate a brokerage account on his behalf, according to the deposition of the Federal Bureau of Investigation agent in charge of the case.
After confirming in an e-mail message that the banker “can do whatever he wants,” the agent said that Mr. Naseem concluded one message with the comment: “Let the fun begin.”
The Associated Press has this:
“This investigation isn’t over,” Stephen Korotash, chief trial counsel in the SEC’s Fort Worth, Texas, office. “We know there are others out there who think they’ve escaped detection. They’re wrong. We’re coming after them.”
And Bloomberg has a detailed piece which quotes one commentator saying leaks are the result of inadequate compliance and surveillance by investment banks amid a boom in M&A activity:
“The firms have all expanded their M&A and private-equity businesses,” said James Cox, a securities law professor at Duke University in Durham, North Carolina. “I question whether that has outstripped the ability of investments banks’ surveillance and compliance departments to keep track of these deals and who has access to insider information.”
While looking for stories on the case, I found Naseem’s profile on LinkedIn, one of those Web 2.0 social networking sites. It still has him listed as working at JP Morgan, which is where he worked before joining Credit Suisse in March 2006.
I guess he was too busy doing other things to update it.