STING OPERATION CATCHES TWO INSIDER TRADING
Last year so-called blue collar tactics – wire taps and informants – resulted in the Galleon insider trading cases, discussed here. In January, an undercover sting operation yielded 22 arrests for FCPA violations, discussed here. Yesterday, another undercover sting operation resulted in criminal and civil insider trading charges being brought against Yonni Sebbag and Bonnie Hoxie. Ms. Hoxie is an administrative assistant to a high level executive at The Walt Disney Company. Mr. Sebbag is her boyfriend. U.S. v. Hoxie & Sebbag (S.D.N.Y. Filed May 26, 2010); SEC v. Sebbag (S.D.N.Y. Filed May 26, 2010).
In March 2010, anonymous were letters about insider trading sent to several hedge funds in New York, other U.S. states and European countries, according to the SEC’s complaint. Specifically, the letters claimed pre-release access to Disney’s 2Q-2010 quarterly earnings report which could be shared for a fee. The FBI obtained the letters and set up an undercover sting operation.
FBI agents, posing as traders, contacted Mr. Sebbag. According to the SEC, the agents and defendant Sebbag exchanged a series of e-mails which are extensively quoted in the complaint. In those e-mails, Mr. Sebbag made it clear that he was looking to establish a business relationship in which he would make available the inside information in return for payment and part of the trading profits.
Eventually, defendant Sebbag made arrangements with two FBI traders to furnish them with inside information about Disney’s 2Q-2010 earnings in return for compensation. Under one arrangement, he agreed to furnish the information in exchange for $15,000 and a 50% split of the trading profits. In a May 4 e-mail, Mr. Sebbag promised to provide the inside information.
Two days before the Disney second quarter earnings announcement, Mr. Sebbag emailed the FBI traders a Disney document titled “The Walt Disney Company Q2 Fiscal 2010 Key Topics Speaking Points.” It was marked “confidential” and contained the talking points for the up coming earnings call. In the text of the e-mail, Mr. Sebbag stated that he expected to have the actual earnings report about 2-3 hours before the market close. He promised to forward it.
The actual earnings report was never furnished to the traders, however. Ms. Hoxie was not able to obtain the document. She did obtain the EPS number for Disney which was furnished to the traders. It was 48 cents per share.
Subsequently, Disney announced its earnings which were 48 cents per share. During the earnings call much of the information contained in the confidential report furnished to the traders was discussed.
On May 14, 2010 Mr. Sebbag met with the two traders and was paid $15,000 in cash. At that point defendant Sebbag, who had previously used an alias in his communications, identified himself. He went on to inform the agents how he obtained the inside information. Later, defendants Hoxie and Sebbag were arrested. In the criminal case the two were charges with wire fraud and conspiracy to commit securities fraud. The SEC’s complaint alleges violations of Exchange Act Section 10(b). Both cases are pending.