An Indian-origin financial analyst has been arrested and charged by US authorities for spilling confidential information about a blockbuster deal between Microsoft and Yahoo to a portfolio manager at a hedge fund.
Sandeep Aggarwal, 40, was charged by Securities and Exchange Commission yesterday for tipping secret information to a S A C Capital portfolio manager who had earlier been charged with insider trading.
Fraud charges were announced against Aggarwal a day after he was arrested in San Jose, California.
The SEC yesterday amended its complaint against Richard Lee, who was charged last week, to additionally charge Aggarwal, a sell-side analyst who tipped Lee in advance of a July 2009 public announcement about an Internet search engine partnership between Microsoft and Yahoo.
Lee purchased large amounts of Yahoo stock in the S A C Capital hedge fund that he managed as well as in his personal trading account on the basis of the inside information.
In a parallel action, the US Attorney's Office for the Southern District of New York yesterday announced criminal charges against Aggarwal, who lives in India but recently returned to the US.
"Rather than rely on legitimate research methods, Aggarwal obtained confidential information from a close friend at Microsoft and passed it along to Lee knowing that he would likely trade on it," said Sanjay Wadhwa, Senior Associate Director of the SEC's New York Regional Office.
"As a sell-side analyst, Aggarwal knew the rules and yet he broke them, which is why he joins the growing ranks of those held accountable by the SEC for insider trading," a SEC statement said.
The SEC alleges that Aggarwal learned confidential details about the significant progress of the Microsoft-Yahoo negotiations from his close friend at Microsoft on July 9, 2009, and he tipped Lee with the information during a telephone call the following day.
When the information was reported in the media almost a week later, Yahoo's stock price rose approximately 4 per cent.
S A C Capital and Lee reaped substantial profits from the Yahoo shares that he purchased after speaking to Aggarwal.
According to the SEC's amended complaint filed in federal court in Manhattan, Aggarwal covered both Microsoft and Yahoo for his research firm and regularly received periodic updates from his inside source at Microsoft.
Upon learning that Microsoft and Yahoo were potentially within two weeks of finalising a deal, Aggarwal shared very specific details with Lee, the SEC statement said.
Aggarwal assured him that the information came from a close friend at Microsoft who was reliable and accurate.
The amended complaint seeks a final judgement ordering Aggarwal and Lee to pay disgorgement of ill-gotten gains plus prejudgement interest and financial penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws, it said.
Last year, Rajat Gupta, a prominent Indian-origin former Goldman Sachs Director, was convicted of insider trading and handed down a two-year prison term and fined USD five million.
64-year-old Gupta is appealing his June, 2012, conviction.