The Justice Department has brought criminal charges against 30 individuals over an alleged decadelong insider trading operation that yielded tens of millions of dollars in illicit profits. In a parallel civil action, the Securities and Exchange Commission has brought charges against 21 of the individuals named in the criminal case.
The complaints identify Nicolo Nourafchan, a mergers and acquisitions lawyer based in Los Angeles, as the ringleader of the alleged scheme, who along with his partner Robert Yadgarov, a lawyer in Long Beach, N.Y., allegedly informed their co-defendants of confidential market-moving information in exchange for kickbacks.
Nourafchan and Yadgarov couldn’t immediately be reached for comment. Court records don’t indicate that any of the defendants has retained a lawyer.
The Justice Department said that 19 of the defendants were arrested Wednesday. Two of the defendants based in Russia and Israel have been deemed fugitives.
Prosecutors say that the charges, filed in federal court in Massachusetts, are the result of a yearslong investigation into trading that took place ahead of some of the biggest M&A deals of the past decade.
“Everyone charged today is accused of scoring significant profits from expected market moves and making out like bandits,” Ted Docks, special agent in charge of the FBI’s Boston Division, said on Wednesday. “Anyone who engages in insider trading fundamentally undermines the trust necessary for our financial markets to function.”
Prosecutors describe Nourafchan as a corporate attorney who had worked with several large law firms, funneling confidential information involving both deals he worked on and ones he wasn’t involved with to a network of lawyers and financial professionals. He and Yadgarov allegedly recruited other lawyers and corporate insiders to provide them with material nonpublic information that they and their co-defendants traded on.
The defendants allegedly often used coded language to further the scheme. In one instance, two of the defendants were allegedly discussing Amazon’s pending but unannounced (and ultimately abortive) acquisition of iRobot, referring to the potential announcement date as an unnamed rabbi’s surgery. The filing includes this exchange:
Defendant A: We cannot miss this boat!!
Defendant B: How’s the rabbi??
Defendant A: He’s stable
Defendant B: Is he still scheduled for surgery?
Defendant A: We are still waiting for the Dr to check if it’s still needed
The SEC’s complaint includes a table alleging that 13 defendants netted more than $1.7 million trading iRobot stock based on nonpublic information. The Justice Department says that the scheme involved insider trading related to nearly 30 M&A deals.
Prosecutors alleged that the defendants used shell companies and other corporate entities to trade in brokerage accounts. They sometimes executed transactions in foreign brokerage accounts and transferred money through intermediaries in locations such as Panama and Switzerland, “all to try to evade the detection of U.S. securities regulators and law enforcement,” according to the Justice Department.
Other tactics to keep authorities off the trail allegedly included the use of burner phones, encrypted messaging applications, and in-person meetings in which participants shut off their electronic devices.
“The trading on unannounced financial news alleged here not only violated the securities laws, but it also took advantage of the special access and ethical duties that come with a law license,” says U.S. Attorney Leah Foley. “If the American people believe that trading is only for the connected, they will keep their investment and retirement savings out of the markets, which will hurt our economy.”
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