The SEC said Tuesday it broke up a multimillion-dollar, trans-Atlantic, in-law insider trading ring.
The Securities and Exchange Commission charged Arnold McClellan, a San Francisco-based former partner with Deloitte Tax LLP, and his wife Annabel with reaping $3 million in ill-gotten gains by leaking Deloitte clients’ acquisition plans to her London-based sister and brother-in-law.
The agency said the brother-in-law, James Sanders of London, took the information on the acquisition plans and used it to establish derivatives trades in U.S.-based companies. The SEC said Sanders’ friends and clients made some $20 million by trading on the information.
Sanders and his wife Miranda were among five people charged last week by the U.K.’s Financial Services Authority for insider dealing. They and three of James Sanders’ colleagues at the Blue Index brokerage were arrested in May 2009, the FSA said.
“The McClellans might have thought that they could conceal their illegal scheme by having close relatives make illegal trades offshore,” said SEC enforcement chief Robert Khuzami. “They were wrong."
So it seems. Among the stocks Sanders placed illegal bets on, the SEC said, were aQuantive, a Seattle-based digital media company taken over in 2007 by Microsoft (msft), and Getty Images, a Seattle-based photo company taken over the next year by private equity firm Hellman & Friedman.
Another stock the McClellans and Sanders milked was Kronos, a Massachussetts-based software company that was taken over in 2007 by, as luck would have it, Hellman & Friedman. One guesses at this point that Hellman & Friedman isn’t totally satisfied with its relationship with Deloitte, though it’s impossible to know as neither firm returned a request for comment.
As nice as the Kronos and Getty Images deals were, the group made the lion’s share of their allegedly ill-gotten gains on aQuantive.
In May 2007, Arnold McClellan began working on his client’s planned acquisition of aQuantive, Inc., a digital advertising and marketing company based in Seattle, Washington. A day after Arnold McClellan started work on the transaction, James Sanders bought derivative investments tied to the price of shares of aQuantive common stock and recommended aQuantive to Blue Index colleagues and clients. Three days later, the acquisition was announced publicly. The Sanderses made profits of more than £552,000 from their positions in aQuantive. James Sanders’s Blue Index colleague and the firm’s clients made profits of nearly £8.1 million.
Nice work if you can get it. McClellan didn’t immediately return a call left at his Deloitte office in San Francisco.
The case is likely to be overshadowed by the huge insider trading crackdown that seems to be in the works in Connecticut. But it is worth noting that it is the third this year involving insider trading allegations at Deloitte.
In February, the SEC charged four men led by John Foley, a former employee benefits specialist at Deloitte, with bilking $210,581 by leaking information on Crocs, YRC, Spectralink and Sigmatel.
In August, a former Deloitte audit partner and his son agreed to pay $1.1 million to settle charges they traded on confidential information such as earnings releases issued by clients such as Best Buy (bby), Sears (shld) and Walgreens (wag).
The partner, Thomas Flanagan, traded on illegal inside information nine times, the SEC said. Rather parsimoniously, on four occasions he passed the inside information on to his son Patrick, who then traded on it as well. Thomas Flanagan also managed to violate SEC auditor independence rules 71 times over five years by trading in audit clients’ shares, fully justifying the faith the firm showed in making him a vice chairman.
As bad as that case was, the McClellan story looks worse, though the SEC stresses there are no allegations against Deloitte in this case.
"Deloitte and its clients entrusted Arnold McClellan with highly confidential information,” the SEC said. “Along with his wife, he abused that trust and used high-placed access to corporate secrets for the couple's own benefit and their family's enrichment."