SEC Files Serial Insider Trading Action

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The Commission brought an insider trading action centered on repeated trades in the same shares over a 40 month period. SEC v. Khan, Civil Action No 14-cv-2743 (N. D. Cal. Filed June 13, 2014). The defendants are Saleem Khan, Ammar Akbari, Roshanlal Chaganlal and Ranjan Mendonsa.

Mr. Khan has held a variety of positions, including as a registered representative at a major brokerage firm. In his most recent Mr. Khan served as a finance director for a large non-profit where he met Messrs. Mendonsa and Aldari. Mr. Chaganlal was employed first as a director and later as the senior director of shortage control in the finance department of Ross Stores, Inc. He met Mr. Khan when the two men were employed at the same company in the late 1990s.

Over a three year period beginning in June 2009 Messrs. Khan, Chaganlal and Mendosa participated in a serial insider trading ring, repeatedly trading on inside information regarding the financial condition of Ross. Through his position with the company Mr. Chaganlal had access to material non-public information regarding inventory losses due to a variety of reasons. He also had access to confidential sales figures which he was required to consult to create reports regarding the inventory losses as a percentage of total sales. Those figures were updated daily. Beginning in March 29 Mr. Chaganlal had access to the updated figures.

On the first Thursday of each month Ross announced its sales figures. Prior to that time those numbers were non-public

On July 6, 2009 Mr. Chaganlal gave Saleem Khan $17,000. The funds were to trade in the securities of Ross, according to the complaint. The funds were transferred through a circuitous route in two parts, using the accounts of others. Ultimately they ended up in a brokerage account in the name of Mr. Khan. Later $130,000 was transferred back to Mr. Chaganlal.

Prior to each monthly sales announcement from August 2009 through December 2012 – over 40 monthly reports — Mr. Chaganlal furnished material non-public information to Mr. Khan, according, to the Commission. Prior to each announcement there was a series of telephone calls between the men. Prior to each announcement Mr. Khan traded Ross options in his brokerage account and another held in the name of his brother-in-law, Shahid Khan. The profits for both accounts totaled nearly $12 million, with $5.4 million in Defendant Kahn’s account and $6 million in the account of his brother-in-law. Mr. Khaganlal was terminated by Ross in December 2012 which is when trading terminated.

During the scheme Mr. Khan also tipped his Messrs. Mendonsa and Akbari. Each traded, reaping profits of, respectively, $800,000 and $2,000.

Mr. Khan engaged in a second insider trading scheme. He traded while in possession of inside information in the shares of Taleo Corporation. That firm was acquired on February 9, 2012 by Oracle Corporation. Prior to the announcement of the transaction, Mr. Kahn learned about the deal from a friend at Oracle. Six days prior to the deal announcement he began purchasing Oracle options. Ultimately, after the deal announcement, he had profits of $450,000.

The Commission’s complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 23022 (June 13, 2012).

Prior to the filing of the Commission’s complaint, Mr. Khan was charged in a criminal case with making false statements to a financial institution and bank fraud. The indictment alleged that his hardship letter seeking agreement from a bank on a proposed “short sale” of residential real estate failed to disclose the profits from the illegal securities trades Mr. Khan pleaded guilty to both counts of the indictment and was sentenced to serve 21 months in prison and directed to pay a $60,000 criminal fine. U.S. v. Khan, CR 12 860 (N.D. Cal.).

 

 

Topics:  Enforcement, Enforcement Actions, Insider Trading, SEC

Published In: Criminal Law Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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