insider trading and market manipulation: detection - FINREP

MARKET MANIPULATION: CASE 2involving USD 38 million (began as an insider case :alerted as market manipulation too)• THE STOCK: SOUTHERN UNION GAS (SUG): The investigation started as potential insider trading. SUGannounced acquisition of PENN ENTERPRISES (PNT) for USD35 in SUG cash and stock• Pricing formula called for the acquisition price to be determined by the average closing price of SUG at theNYSE for a period of 10 days as of a certain date – the lower the SUG price the more cash SUG would haveto pay for the acquisition• After the pricing period started SUG traded to its lowest price USD17.66• Baron Capital was a holder of a sizable position in SUG• Mr. R. S. Baron, acting on behalf of customer accounts, directed to start buying SUG at or near the close oftrading to raise the average closing price of SUG• The Baron purchases caused SUG to move up in price and save SUG approximately USD38 million – theBaron purchases were effected and assisted by Trading Floor staff of SLK, another Broker/dealer• REGULATORY ACTIONS:- By SEC: Fined R.S Baron and Baron Capital USD2.7 million for market manipulation- By SEC and NYSE: Fined SLK USD500,000.00 for failure to supervise- By NYSE: One SLK Trading Floor Broker – Permanent Bar from the Trading Floor and 5 year Bar fromany employment with NYSE members for aiding and abetting; and A second SLK Trading FloorBroker – 1 year suspension from membership or employment with any member.7