SEC Settles Five Insider Trading Actions, Cooperation Key

by Dorsey & Whitney LLP
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The Commission filed two groups of settled insider trading actions centered on the merger of eBay, Inc. with Pennsylvania based e-commerce company GSI Commerce, Inc., announced on March 28, 2011. The first group traces to Christopher Saridakis as the source of the information, then the CEO of the Marketing Solutions division of GSIC. SEC v. Saridakis, Civil Action 152397 (E.D. Pa. Filed April 25, 2014): In the Matter of Sunken A. Shah, Adm. Proc. File No. 3-15856 (Filed April 25, 2014): In the Matter of Shimul A. Shah, Adm. Admin. Proc. File No. 3-15857 (April 25, 2014). The other traces to the wife of a corporate insider, neither of whom are identified. In the Matter of Oden Gabay, Adm. Proc. File No. 3-15854 (April 25, 2014); In the Matter of Aharon R. Yehuda, Adm. Procc. File No. 3-15855 (April 25, 2014). The Commission was substantially assisted in its investigation by an individual who entered into a non-prosecution agreement, the first with an individual, and others who cooperated.

The Saridakis group

At the end of January 2011 eBay began discussion regarding the possible acquisition of GSIC. By mid-February Mr. Saridakis became aware of those discussion as part of his official duties. On March 11, 2011 he participated in a meeting involving executives of the two companies. The final agreement was completed on the morning of March 28, 2011.

On the evening of March 11, Mr. Saridakis had a conversation with Suken Shah, identified as a friend and surgeon who lives in Delaware. Suken Shah, who is named as a Respondent in a separate administrative proceeding, began purchasing shares of GSIC on March 14, 2014. After the deal announcement he had trading profits of $9,838. He also tipped his brother, Shimul Shah, and two others, one of whom traded. Shimul Shah, named in a separate administrative proceeding, traded and had profits of $11,209. The two unidentified individuals he tipped had profits totaling $34,680.

Subsequently, Mr. Saridakis is alleged to have tipped Jules Gardner. He has been friends with Mr. Gardner since 2003. Mr. Gardner is named as a defendant in the Saridakis case. Over the years the two men spoke periodically and exchanged text messages.

Starting on March 20, 2011 the two friends exchanged 23 text messages, according to the complaint. One of those asked if Mr. Gardner owned shares of GSIC and, when the response was negative, drew a reply which stated “you should.” Two days later Mr. Gardner purchased 25,000 shares of GSIC stock. He had not previously purchased shares in the company. After the deal announcement he had trading profits of $259,054. Mr. Gardner also tipped two unidentified individuals who traded. They had trading profits which totaled $380,175.

Finally, unidentified members of Mr. Saridakis’ family also became aware of the pending transaction based on conversations with him. Those persons traded, making profits totaling $41,060 after the deal announcement.

During a FINRA inquiry Mr. Saridakis failed to identify Suken Shah. The complaint against Messrs. Saridakis and Gardner alleges violations of Exchange Act Section 10(b). The Orders in the administrative proceedings are based on the same Section.

To resolve the civil injunctive action Mr. Saridakis consented to the entry of an officer director bar and agreed to pay a penalty of $664,822 which is twice the amount of his tippees’ profits. He was also named as a defendant in a parallel criminal case. Mr. Gardner agreed to a cooperation with the agency as well as to disgorge his trading profits of $259,054.

Suken Shah agreed to resolve the administrative proceeding in which he was named, consenting to the entry of a cease and desist order based on Exchange Act Section 10(b). A also agreed to an undertaking to cooperate in future proceedings and to pay disgorgement of $10,446, prejudgment interest and a penalty of $65,965. His penalty is three times the amount of his and his tippees’ trading profits. The Commission considered the undertaking in determining to accept the settlement. Mr. Shah’s brother, Shimul, settled on similar terms, agreeing to cooperate and to the entry of a cease and desist order. He also agreed to pay disgorgement of $11,209.22, prejudgment interest and a civil penalty of $22,418,44. His penalty is twice the amount of his trading profits. The Commission considered the undertaking in determining to accept the offer.

The individual who entered into the non-prosecution agreement with the SEC also agreed to disgorge his trading profits of $31,777 along with prejudgment interest. The Commission entered into the agreement based on his early and extraordinary cooperation.

Wife of unidentified insider

Two administrative proceedings were initiated, naming as Respondents individuals who are alleged to have ultimately obtained inside information from the wife of an unidentified insider. In these proceedings Oded Gabay, a hairdresser in New York City, is alleged to have learned about the proposed merger shortly before its announcement. The information came from his wife who obtained it in confidence from the wife of an insider. Mr. Gabay traded and tipped an unidentified friend who traded. After the deal announcement Mr. Gahay’s profits were $23,615 while those of his friend were $20,739.75. Mr. Gabay settled with the Commission, agreeing to cooperate and to pay disgorgement of $23,615 along with prejudgment interest and a civil penalty of $22,177. His penalty was reduced to half the total of his profits and those of Mr. Yehuda based on cooperation.

Mr. Gaby also told his friend Aharon Yehuda, named as a Respondent in a separate administrative proceeding, about the transaction. Mr. Yehada also traded and, after the deal announcement, had profits of $20,739.75. He resolved the proceeding, agreeing to an undertaking to cooperate and to the entry of a cease and desist order based on Exchange Act Section 10(b). Mr. Yehuda also agreed to pay disgorgement of $20,739.75 along with prejudgment interest and a civil penalty of $20,739.75.

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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