The Securities and Exchange Commission’s insider trading sweep leaped across the Atlantic Ocean, with a former tax partner at Deloitte LLP charged with leaking confidential information on potential mergers to family members in London.
The SEC Tuesday charged Arnold McClellan, a former regional manager at Deloitte Touche Tomatsu in New York and then audit director for Deloitte LLP in San Francisco, with providing “advance notice of at least seven confidential acquisitions planned by Deloitte's clients” to relatives in London.
Also charged was McClellan’s wife, Annabel. The McClellans live in San Francisco.
Receiving the tips, according to the SEC, were to Annabel's sister and brother-in-law in London.
Afterward, the brother-in-law took financial positions in U.S. companies that were the targets of the acquisitions from Arnold McClellan's clients.
“His subsequent trades were closely timed with telephone calls between Annabel McClellan and her sister, and with in-person visits with the McClellans,’’ the SEC said.
The McClellans could not be reached for comment.
The insider trading brough in illegal profits of approximately $3 million, half of which was to be sent back to Annabel McClellan, according to the SEC.
The UK Financial Services Authority (FSA) has announced charges against the two relatives — James and Miranda Sanders of London. The FSA also charged colleagues of James Sanders at his London-based derivatives firm. Sanders's colleagues and clients made approximately $20 million in U.S. dollars by trading on the inside information.
"The McClellans might have thought that they could conceal their illegal scheme by having close relatives make illegal trades offshore. They were wrong," said Robert Khuzami, Director of the SEC's Division of Enforcement. "In this day and age, whether it's across oceans or across markets, the SEC and its domestic and foreign law enforcement partners are committed to identifying and prosecuting illegal insider trading."
The SEC alleges that between 2006 and 2008, James Sanders used the non-public information obtained from the McClellans to purchase derivative financial instruments known as "spread bets" that are pegged to the price of the underlying U.S. stock.
The trading started modestly, the SEC said, with James Sanders buying the equivalent of 1,000 shares of stock in a company that Arnold McClellan's client was attempting to acquire. Subsequent deals netted significant trading profits, and eventually James Sanders was taking large positions and passing along information about Arnold McClellan's deals to colleagues and clients at his trading firm as well as to his father.
Among the confidential impending transactions allegedly revealed by McClellan:
- Kronos Inc., a Massachusetts-based data collection and payroll software company acquired by a private equity firm in 2007.
- aQuantive Inc., a Seattle-based digital advertising and marketing company acquired by Microsoft in 2007.
- Getty Images Inc., a Seattle-based licenser of photographs and other visual content acquired by a private equity firm in 2008.