insider trading and market manipulation: detection - FINREP

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MARKET MANIPULATION ANDOTHER TRADING ABUSES• DETECTION- Scenario Specific (One Trade vs. Pattern)- “At or Near-The-Close”- Portfolio- Intraday- Prearranged or “Wash” Trades- Frontrunning- “Pump and Dump”• INVESTIGATION- Aggressive Trading Pattern- Artificial Market – No Perceived Legitimate Economic Purpose- Purposefulness or Motive3INSIDER TRADING: CASE STUDY 1(an insider trading scheme generating USD 2 million)• TIPPING AND TRADING – several securities ahead of publicannouncements that they were targets in mergers or acquisitions• F. Gallucci: Did not trade. His wife was secretary to a Partner in aLaw firm representing the companies involved• R. A. Manzo: Owner of a NJ insurance company, friend of Gallucci –profited USD900,000• G. B. Taffet: Former Chief of Staff to the NJ Governor and owner ofa company advising local NJ governments – profited USD247,000• Manzo and Taffet also tipped others totaling illicit profits of USD1.8million• REGULATORY ACTION: MANZO PAID OVER USD1.3 MILLION;GALLUCCI BARRED FROM ASSOCIATING WITH ANY BROKEROR DEALER4
INSIDER TRADING: CASE STUDY 2(detected through use of illegal drugs)• MARISSA BARIDAS: NYSE Referred 6 merger deals exhibiting same Investment Bankerand same Accounts trading in all 6 merger deals (no source identified)• NYSE investigator read in the NY Times that an individual was arrested and uncovered aninsider trading network identifying the accounts referred and 5 stocks; 3 of which NYSEhad referred to the SEC• NYSE investigator recognized some of the accounts mentioned in the NY Times article asthose having been referred to the SEC• OUTCOME:- Baridas was the Control Room person at the Investment Banker involved in the 6deals- The individual mentioned in the NY Times as having been arrested was Baridasboyfriend- Baridas tipped her boyfriend who in turn tipped others; the Manhattan District Attorneyfound out about the insider trading scheme when they taped recorded the boyfriend resultingfrom a drug dealing investigation and had the boyfriend cooperate by having him wear a wirewhen speaking with Baridas about how she obtained her information- First case in the State of NY declaring insider trading to be Grand larceny: Baridassentenced to jail; and her boyfriend sent to jail for the drug conviction at a reduced sentencefor cooperating5MARKET MANIPULATION: CASE 1(at the close of trading)• D. MEMMOT AND BRIAN RIGNEY: With the last sale in XYZ stock atUSD8.95, Memmot, a broker approved a customer facilitation for a blockof XYZ stock of approximately 4.8 million shares of XYZ at a price ofUSD9.00• Memmot purchased about 2.8 million shares for his firm’s ProprietaryAccount in the facilitation• Following the customer facilitation, the price of XYZ began to declineand Memmot directed his trader Rigney to buy the stock and close it atUSD9.00• REGULATORY ACTION BY THE NYSE: MEMMOT CENSURED,SUSPENDED FOR 6 WEEKS AND OREDERED TO PAY USD100,000;RIGNEY CENSURED AND ORDERED TO PAY USD75,0006
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