The Commission prevailed in an insider trading case, winning a jury verdict determining that Vinayak Gowrish violated Exchange Act Section 10(b) in connection with three transactions. SEC v. Gowrish, 09-CV-5883 (N.D. Cal. Filed Dec. 16, 2009).
The SEC’s complaint charged two market professions and their friends with insider trading. Named as defendants were: Mr. Gowrish, an associate in the San Francisco office of TPG Capital, L.P., a global private investment firm; Adnan S. Zaman, an associate with the investment banking firm of Lazard Ferres & Co. LLC; and their two friends, Pascal Vaghar and Semeer Khoury along with relief defendant Elias Khouray, Sameer’s brother.
The complaint claims that Messrs. Gowrish and Zaman tipped their friends, Messrs. Vaghar and Khoury on five occasions, furnishing them with inside information misappropriated from their respective employers. Specifically, the complaint alleged that Mr. Gowrish misappropriated information in 2006 and 2007 about the negotiations of TPG to acquire Sabre Holdings, Corp, TXU Corporation and Alliance Data Systems Corporation or ADS. The inside information was furnished to Mr. Zaman who then passed it on to Messrs. Vaghar and Khouray, each of whom traded. Mr. Zaman, a long time friend of defendant Gowrish, misappropriated inside information of Lazard clients involved in negotiations to acquire webMethods, Inc. and Myogen, Inc.
The defendants took steps to try and avoid detection. At times the inside information was transmitted in code. In other instances it was passed on yellow sticky notes. Trades were kept small to avoid attention.
Messrs. Vaghar and Zaman were alleged to have made almost $500,000 in illegal trading profits. In exchange Mr. Gowrish was given cash kickbacks from defendant Vaghar. Mr. Zaman received kickbacks in the form of cash, free rent and other items of value from both traders totaling about $70,000.
Each defendant, except Mr. Gowrish, settled at the time the complaint was filed. Each consented to the entry of a permanent injunction prohibiting future violations of Exchange Act Sections 10(b) and 14(e). Mr. Zaman also agreed to pay disgorgement and prejudgment interest of $78,456 and to the entry of an administrative order permanently barring him from associating with any broker or dealer. The final judgment against Mr. Vaghar requires him to pay $366,001 in disgorgement and prejudgment interest but waives payment of all except $33,000 based on his financial condition. It does not impose a civil penalty for the same reason. The final judgment against Sameer Khoury directs him to pay $198,607 in disgorgement and prejudgment interest but waives payment and does not impose a penalty based on his financial condition. Lit. Rel. No 21339 (Dec. 16, 2009).
In reaching its verdict, the jury found Mr. Gowrish liable for having furnished material non-public information about the negotiations to acquire Sabre, TXU and ADS to his two friends in violation of Exchange Act Section 10(b). The court will consider the question of remedies at a later date. Lit. Rel. No. 21838 (Feb. 4, 2011).