The SEC and the DOJ have been conducting a high profile war on insider trading which has spawned dozens of criminal and civil cases and put many in prison while staking up the penalties and fines. Just last week, for example, Rajat Gupta, a former Goldman Sachs director, was sentenced to prison for two years on insider trading charges while the appeal of his close friend, Raja Rajaratnam, was argued before the Second Circuit in an effort to overturn an eleven year insider trading sentence.
Despite the success of the campaign, the cases keep on coming. Friday the Commission brought two more actions. The first is tied to the seemingly endless Galleon investigation. It centers on former Xilins, Inc. CFO Kris Chellam. Xilinx is a San Jose, California based developer of semi-conductors and related products. In late 2006, according to the complaint, Mr. Chellam tipped Raja Rajaratnam regarding downward trends about Xilinx’s business. At the time the information contradicted the company’s prior public projections.
As a result of Mr. Chellam’s information, the Galleon hedge funds shorted Xilinx shares. After the company released the negative information on December 7, 2006, those funds had a profit of $978,684. At the time of the tip Mr. Chellam was good friends with Mr. Rajaratnam, had a significant investment in the Galleon funds and was discussing prospective employment with those funds which he eventually accepted. The complaint alleges violations of Exchange Act Section 10(b) and Securities Act Section 17(a).
Mr. Chellam settled with the SEC, consenting to the entry of a permanent injunction prohibiting future violations of the sections cited in the complaint. In addition, he will pay $675,000 in disgorgement, prejudgment interest and a penalty of $978,684. Mr. Chellam will also be barred for five years from serving as an officer or director of a public company. SEC v. Chellam, Case No. 12 CV 7983 ((S.D.N.Y. Filed Oct 26, 2012).
The second is against Denver insurance executive Michael Van Gelder. It centers on the acquisition of Delta Petroleum by Tracinda Corporation, announced on December 31, 2007. In the weeks leading up to the announcement, a close person friend of Mr. Van Gelder, the CEO of Van Gilder Insurance Company, furnished him with information about the deal. The friend was employed at Delta and involved in the transaction. As the deal developed the two friends exchanged dozens of text messages and telephone calls.
Prior to the deal announcement Mr. Van Gilder purchased shares of Delta for his account as well as options. He also urged his relatives, his broker and a co-worker to purchase shares of Delta. Following the deal announcement the share price increased by about 20% giving Mr. Van Gelder, one of his relatives, his broker and his co-worker had trading profits of over $161,000.
Mr. Van Gelder is also alleged to have purchased Delta securities based on inside information from the same friend regarding the then up coming third quarter 2007 financial results. That trading resulted in $4,000 in ill-gotten gains.
The Commission’s complaint alleges violations of Exchange Act Section 10(b). It is pending. SEC v. Van Gilder, Case No. 1:12-cv-02839 (D. Colo. Filed Oct. 26, 2012).
The U.S. Attorney for the District of Colorado also announced a parallel criminal action against Mr. Van Gilder.