Four Members of Insider Trading Ring, Including a Corporate Executive, Two Cpas, and a Lawyer, Plead Guilty to Securities Fraud Charges
ZVI ROSENTHAL, a former vice president at Taro Pharmaceutical Industries, Ltd. (“Taro”), his sons AMIR ROSENTHAL, an attorney in New York City, and AYAL ROSENTHAL, formerly an accountant at PricewaterhouseCoopers, and DAVID HEYMAN, formerly an accountant at Ernst & Young, pleaded guilty today for their participation in a scheme to misappropriate inside information from three publicly held companies. By executing options transactions in advance of several significant public announcements, the defendants illegally reaped more than $2 million in profits. The guilty pleas were accepted by United States District Judge John Gleeson at the U.S. Courthouse in Brooklyn, New York.
When sentenced, by Judge Gleeson, each defendant faces a maximum sentence of five years’ imprisonment and a fine of $250,000.
The guilty pleas were announced by Roslynn R. Mauskopf, United States Attorney for the Eastern District of New York, and Mark J. Mershon, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office. The government’s investigation was conducted with the assistance of the United States Securities and Exchange Commission (“SEC”) and the Chicago Board Options Exchange (“CBOE”). In a related development, earlier today the SEC announced the filing of civil charges against the defendants.
Insider Trading in Taro Securities
While employed at Taro, ZVI ROSENTHAL had access to confidential information concerning the anticipated approval of Taro’s application to the Federal Drug Administration (“FDA”) for permission to market a new generic drug. He passed this information to his son AMIR ROSENTHAL, who quickly executed transactions in Taro options before the FDA’s approval was made public. After Taro’s public announcement of the FDA approval, the price of Taro’s securities rose substantially, netting these defendants a profit of more than $100,000.
The defendants also profited from trading on non-public information concerning forthcoming quarterly earnings announcements by Taro. In June 2004, ZVI ROSENTHAL learned that Taro’s second quarter sales figures would be far worse than expected. He shared this information with his son AMIR ROSENTHAL, who then executed securities transactions designed to profit when the stock price of Taro fell after Taro’s earnings were made public. AMIR ROSENTHAL also passed this non-public information to DAVID HEYMAN, who made similar securities transactions. In total, these three defendants made approximately $1.5 million trading on this confidential, non-public information.
In October 2005, ZVI ROSENTHAL received confidential information that Taro’s financial results for third quarter of 2005 would again miss expectations. This information was shared with AMIR ROSENTHAL and DAVID HEYMAN, who then executed options contracts on Taro’s stock. On November 17, 2005, Taro reported lower-than-expected third quarter financial results, Taro’s stock price fell, and these defendants profited by almost a half-million dollars.
Insider Trading on Non-Public M&A Transactions
In April 2005, DAVID HEYMAN, while employed as an accountant at Ernst & Young, learned that two large, publicly held corporations were contemplating a merger in the near future. HEYMAN communicated this information to AMIR ROSENTHAL, who quickly engaged in securities transactions using options contracts designed to profit when the share price of one of the merger partners rose. The merger, however, was never consummated.
One month later, in May 2005, AYAL ROSENTHAL, while working at PricewaterhouseCoopers, received confidential information that two large companies were contemplating a merger. He promptly informed AMIR ROSENTHAL, who again engaged in securities transactions using options contracts designed to profit if the share price of one of the merger parties rose. Thereafter, AYAL ROSENTHAL received additional non-public information that the merger was being postponed, which he reported to AMIR ROSENTHAL, who then liquidated his position in the securities of the merger parties.
“We are determined to ensure that the investing public can operate on a level playing field,” stated United States Attorney Mauskopf. “When corporate insiders and licensed professionals abuse their positions for personal profit, they can expect to be met with the full resources of law enforcement.” Ms. Mauskopf extended her grateful appreciation to the Securities and Exchange Commission for its extraordinary assistance and cooperation in this case.
FBI Assistant Director-in-Charge Mershon stated, “Trading on insider information entails not only a breach of faith. It results in unjust enrichment of the dishonest few and economic loss or disadvantage to the investing public. As this case demonstrates, non-public information about a company can be used to profitable unfair advantage whether the information is likely to send the company’s share price up or down. The FBI will continue to police those who, in playing the stock market, don’t play by the rules.”
The government’s case is being prosecuted by Assistant United States Attorneys Paul Weinstein and Sean Casey.
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