Matthew Goldstein of Reuters has an interesting article out today profiling Dan Hawke and the SEC’s resurgent Philadelphia office.  The Philadelphia office–which Goldstein notes “sits atop an upscale shopping mall in downtown Philadelphia”–is now Ground Zero for the SEC’s new effort against market abuse. On January 13, 2010, Hawke was named as Chief of the SEC’s Market Abuse unit.

Hawke says that the focus of his group is “trader-based,” and not simply “securities-based.” By this he means that his team uses computers to take personal information about individual traders, such as where they went to school or where they used to work, and cross-check it against trading data on dozens of stocks. This is a variation on the SEC’s typical practice of pursuing a case only after learning of unusual activity in the trading of some security.

(Goldstein then quotes some dude named Bruce Carton, who says that “A decade ago there wasn’t a whole lot of computer assistance when it came to matching up names or matching up employers. That’s extremely helpful.”)

Hawke’s new Market Abuse unit will be staffed by SEC lawyers in numerous offices, and he has already named a deputy, Sanjay Wadhwa, who is an assistant regional director in the New York office.

The article also reminded me that Hawke was one of the SEC lawyers who helped uncover the “Estonian Spider Hackers,” two employees of an Estonian financial services firm who made nearly $8 million in insider trading profits by using a “spider” program to hack into Business Wire’s secure client website. Once they hacked into the website, they had access to confidential information in impending nonpublic press releases, including news involving mergers, earnings, and regulatory actions. Their scheme, which even Hawke had to admit was “clever and pernicious,” earned them a place in December 2008 on Securities Docket’s “Mount Rushmore of Securities Fraud.”

Earlier this week, Commodity Futures Trading Commission Chairman Gary Gensler clarified that no matter what you might have assumed back in 1983, Billy Ray Valentine (Eddie Murphy) and Louis Winthorpe III (Dan Aykroyd) did not commit insider trading when they made millions trading on orange juice futures in the movie Trading Places. As you may recall, Billy Ray and Winthrop intercepted a confidential Department of Agriculture “crop report” on orange crop forecasts, and used it to successfully sell short and corner the orange juice futures market before the report was publicly announced (and to simultaneously ruin the Duke brothers, who lost $394 million based on a false copy of the report).

In a speech on Wednesday, Gensler reiterated the CFTC’s position that the insider trading laws in the securities world should be expanded to the futures world, making it illegal to trade on non-public information from agencies like the U.S. Treasury, Federal Reserve and Department of Agriculture. Gensler cited “Trading Places” to explain why such an expansion of the law should occur, saying the CFTC wants to implement an “Eddie Murphy” rule.  In real life, he said, Billy Ray and Winthrop’s trading based on “misappropriated government information is actually not illegal under our statute.”

2009 was a year to forget for the Securities and Exchange Commission, Wall Street, the White House, law firms-everywhere, really. However, 2009 was truly the gift that kept on giving for those of us who write about SEC enforcement and securities litigation. Here is my look back at 2009, which I have learned I must preface with this important warning:  Mom-the column below includes some efforts at satire. These efforts are marked in italics.

Okay, moving on! Let’s start in January, which began, as it has for the last three years, with members of Congress Louise M. Slaughter and Brian Baird sponsoring the “Stop Trading on Congressional Knowledge Act.”  The STOCK Act, which again failed to become law, would prohibit Congress and their staffers from engaging in insider trading based on nonpublic information obtained through their official positions.  The other 433 members of Congress once again dismissed the bill as “crazy talk” and ordered Slaughter and Baird back into hibernation until January 2010.

B. Ramalinga Raju, chairman and CEO of Satyam Computer Services, resigned after confessing to falsifying the company’s financial records in a $1 billion fraud.  He said the fraud was “like riding a tiger, not knowing how to get off without being eaten.” Raju promptly received a curious call from golfer Tiger Woods’ lawyers, who said Tiger wanted to know “what exactly you meant by that and whether $5 million would be enough for you to not say that again.”

In February, lawyer Marc Dreier, whose outrageous $700 million fraud was spared from being the securities fraud story of the year only because of the simultaneously unfolding Madoff scandal, asked the court to allow him to remain free on bail, but on “house arrest” with armed guards pending his trial. This prompted Judge Jed Rakoff to ask the 2009 Judicial Question of the Year to Dreier’s lawyers: “Are these armed guards authorized to shoot him?” After careful consideration and discussion with Dreier (who presumably said, “Hell no!”), Dreier’s lawyers said the guards could not, repeat NOT, shoot their client. Judge Rakoff granted the request anyway, and ordered Dreier to be held in Dreier’s $10 million Manhattan penthouse apartment until trial. In March, CFTC Commissioner Bart Chilton warned the public of “rampant Ponzimonium.”  The Topps Company jumped on board, announcing that it was issuing a series of trading cards featuring the “world’s biggest hoaxes, hoodwinks and bamboozles” such as Bernard Madoff, Charles Ponzi, and Enron.  From his penthouse, Dreier issued a statement that he was “finished taking a backseat to Madoff” and that he demanded a trading card, too.

The SEC charged Madoff’s auditor with securities fraud for falsely representing and “pretending” that they had conducted legitimate audits, when in fact the auditors had not. The auditors wrote a one-line reply brief to the SEC that read: “Really?? Pretending to do one’s job? Are you sure you want to go there?”

Asked in an interview whether she was tough enough to shake things up at the agency, new SEC Chair Schapiro responded that she had been “called the Muammar Qaddafi of regulation.”  From his palace in Libya, Colonel Qaddafi stated that he was “flattered but that Schapiro has a lot to prove first.”

In April, the L.A. Times, The New York Times and the UK’s Telegraph all ran stories announcing that the SEC had joined Twitter as a part of Schapiro’s effort to revitalize the SEC and make it more transparent.  The articles did not mention that that the SEC had already been actively using Twitter since July 2008, leading someone using the Twitter username @maryqaddafi to tweet that “it would be super if my Twitter followers could just keep that bit of information on the down low.”

Robert Khuzami, the new Director of the SEC’s Enforcement Division, addressed the Enforcement staff on his first day to outline his four major themes: being “strategic, swift, smart and successful.”  Madoff whistleblower Harry Markopolos immediately held a press conference claiming that Khuzami’s “single-minded pursuit of goals beginning with the letter ‘S’ was impeding the agency’s mission.”

The SEC’s Inspector General released a report stating that two attorneys at the SEC, including one in the Enforcement Division, were under “active” criminal investigation by the FBI for trading stocks based on inside information learned on the job.  The SEC promptly took action to bolster its internal processes to prevent against such trading, but also warned that it would “file an equally ironic case against anyone caught laughing at this development.”

In June, counsel for Bernard Madoff suggested to the court that a 12-year sentence would be appropriate for their client. After a brief awkward pause followed by uproarious laughter, the court sentenced Madoff to 150 years in prison.  Sholam Weiss, presently serving a record 845-year sentence after being convicted of racketeering, wire fraud and money laundering in the collapse of National Heritage Life Insurance, was heard to say “Wait-I’m serving 695 more years than Madoff?!”

June also brought a new type of collectible: Financial Crisis “Most Wanted” Playing Cards, featuring Madoff, R. Allen Stanford, and others such as Dick Fuld and Angelo Mozilo. In his penthouse, Dreier screamed, “No Dreier card again? Are you kidding me?  Did Madoff or Stanford walk into an office building and impersonate an actual lawyer from the Ontario Teachers’ Pension Plan? I don’t think so!!”

In July, prosecutors in the R. Allen Stanford case gave us the 2009 Thankless Job of the Year: someone, they said, would soon be tasked with the roughly two month long task of “re-assembling the contents of three bags of shredded documents” that were sought as evidence in the case.  12,000 associates laid off from major law firms in 2009 immediately applied for the position.

The trial began of William Jefferson, a nine term Congressman from Louisiana charged with soliciting bribes and violating the Foreign Corrupt Practices Act. This led to the first published photos of Jefferson’s now-famous “cash in the freezer,” i.e., $90,000 wrapped in aluminum foil in Jefferson’s freezer tucked inside containers of Pillsbury Pie Crust and Boca Burgers. From his new home in the Butner Correctional Facility in North Carolina, Madoff texted Dreier with a “rolling eyes” emoticon to say that “everyone knows you use the Red Baron Frozen Pizza box to hide sums of cash over $75,000.”

In August, a theatrical play called “Enron” opened in Chichester, England. The Guardian’s review stated that it was “an exhilarating mix of political satire, modern morality and multimedia spectacle.”  The play was so successful that by September, Columbia Pictures had entered into a “high six-figure deal” to acquire the screen rights and adapt the play into a feature length film. 43 telephone calls to Columbia Pictures from “B. Ebbers,” an inmate in a Louisiana federal prison pitching “WorldCom, the Musical,” went unreturned.

In October, Stanley Chais, a money manager who was sued by the SEC after feeding hundreds of millions of dollars to Madoff, argued that the SEC’s claims against him were barred because the SEC’s many inspections of Madoff’s firm without taking any action “provided credibility to Madoff.”  The SEC responded that this was the nicest thing anyone had said about them all year.

In November, the SEC began running an ad for a “Supervisory General Attorney” in the Enforcement Division, which included a prominent headline blaring “SEC RANKED THIRD BEST FEDERAL WORKPLACE FOR 2007!” (capital letters, bold face and exclamation point in original). SEC Inspector General H. David Kotz stated that he was opening a 12-month investigation into how the ranking was determined, and would be offering best practices for future rankings.

Also in November, the U.S. Marshals Service collected every watch, golf ball, sand wedge, cuff link, earring, duck decoy, wooden milk stool, baseball jacket, and baseball mitt ever owned by the Madoffs and sold them off at auction. The person who paid $14,500 for a blue satin New York Mets baseball jacket with “MADOFF” stitched across the back called the item a “great value” that could be paired “fabulously” with the Dennis Kozlowski button-fly jeans he’d bought at auction in 2007.

Finally, just under the wire in December, the SEC charged a former vice president of Pride International, Inc. who was responsible for FCPA compliance with … wait for it… violations of the FCPA. “We warned you in April not to laugh at SEC enforcement lawyers being investigated for insider trading,” the SEC said.

Around the globe, people seek some kind of connection to each other. I’m in the U.S., you are in the U.K., he is in Sweden, she is in Australia–what do we possibly have in common? Well, here’s one thing: As far as I can tell, in 2009, people universally do not like their country’s securities regulator.

Let’s start with the U.S., where you know all about the SEC’s problems. After completely whiffing on the Madoff case, the SEC’s approval ratings sunk so far and so fast that by July 2009, it was viewed unfavorably by 55% of the public, exceeding even that of the Internal Revenue Service!

What about across the pond, where the U.K.’s Financial Services Authority is bring an unprecedented number of insider trading cases and criminal cases, and has issued a record amount of fines? Surely the FSA must be in the public’s good graces? Hardly–in fact, the current plan of the Conservative party, which is reportedly favored to win the June 2010 elections, is to abolish the FSA altogether. The “Tories” would make the Bank of England responsible for regulating the financial services, which would “represent the most radical shake up of the regulation of the financial services industry in more than a decade.”

How about Sweden? The latest reports from that country are that dissatisfaction with the Swedish National Economic Crimes Bureau has reached a level where one particularly high-profile case is now viewed as a “win-or-die” situation for the regulator. “Without any convictions in this case will it be hard for the government not to pull the plug,” the Stockholm News reports.

As far as I can tell, however, Australia’s ASIC (the Australian Securities and Investments Commission) may be the global leader now in terms of public disapproval. The ASIC’s embarrassing loss last month in its 8-year-old case against Jodee Rich was labeled by the financial press as a “crushing defeat” and a “monumental, utterly unqualified catastrophe.” Others added that a “sick ASIC should be put out of its misery” and disbanded altogether. That was apparently just a warmup to the defeat the ASIC suffered this week, when Australia’s Federal Court dismissed all 22 of ASIC’s allegations against billionaire Andrew “Twiggy” Forrest and his company, Fortescue Metals Group. The court ordered ASIC to pay Forrest’s and Fortescue’s costs, which could amount to millions of dollars, and stated that ASIC had no basis for the civil proceedings in the first place.

ASIC’s “comprehensive towelling” by the court in the Forrest case has led to another round of extreme bashing, with the press describing the commission using words such as “incompetent,” “embarrassing” and “bull-headed buffoonery,” and inventing new twists on the “ASIC” acronym (such as “Australia’s Simply Ineffective (corporate) Cop”).

So at this special time of the year, realize that in at least some small ways, we’re really not all that different from one other.

Yesterday, U.S. District Judge Melinda Harmon (S.D. Tex.) put the final nail in the coffin of what was left of a lawsuit brought by Enron shareholders against banks they alleged helped the company commit fraud. The ruling, which effectively ends the case, comes exactly eight years to the day after Enron filed for bankruptcy protection.

The class bringing the lawsuit has already obtained a massive $7.2 billion in settlements in the case from defendants such as Citigroup and JPMorgan Chase & Co. The $7.2 billion is the all-time highest settlement amount in a securities class action according to Cornerstone Research.

Other bank defendants, however, refused to settle the case, and will now pay nothing following the dismissal. Reuters reports that non-settling defendants include Bank of America Corp’s Merrill Lynch unit, Barclays Plc, Credit Suisse Group AG Royal Bank of Canada, Royal Bank of Scotland Group Plc and Toronto-Dominion Bank.

Patrick Coughlin, a partner at Coughlin Stoia Geller Rudman & Robbins LLP, which was lead counsel in the case, said $4.6 billion of the settlement funds have been distributed, another $1 billion is likely to follow this month, and the rest will likely go out by next summer.

I’m still thinking about last week’s SEC job ad that, for unknown reasons, continues to highlight the fact that the SEC was “RANKED THIRD BEST FEDERAL WORKPLACE FOR 2007!”

Do you think this mere (all caps, bold, exclamation-pointed) reference is adequate under the circumstances?  I mean, doesn’t this three-year-old bronze medal call for something much more? Maybe commemorative tee shirts?

I’m working diligently on a potential design below. Who wants one?!

As SEC Enforcement Director Rob Khuzami said today, “If you find yourself chewing the card of a cell phone…something has gone terribly wrong.”

Indeed. The SEC filed a huge insider trading case today against two lawyers, six Wall Street traders and a proprietary trading firm, alleging that the scheme netted over $20 million. The SEC alleges that Arthur J. Cutillo, an attorney in the New York office of law firm Ropes & Gray, had access to confidential information about at least four major proposed corporate transactions in which his firm’s clients participated. Through his friend, attorney Jason Goldfarb, Cutillo tipped this inside information to Zvi Goffer, a trader at New York-based firm Schottenfeld Group.

Goffer, allegedly known as “the Octopussy” within the insider trading ring because he had his arms in so many sources of inside information, in turn tipped four traders at three different broker-dealer firms and another professional trader Craig Drimal, who each then traded either for their own account or their firm’s proprietary accounts. Also, notably, Goffer allegedly went to work at … wait for it… Galleon Group from January 2008 through August 2008.

Goffer and the lawyers allegedly went to great lengths to keep their communications secret, even using disposable cell phones. The SEC says that prior to the announcement of one acquisition,

Goffer gave one of his tippees a disposable cell phone that had two programmed phone numbers labeled “you” and “me.” After the announcement, Goffer destroyed the disposable cell phone by removing the SIM card, biting it, and breaking the phone in half, throwing away half of the phone and instructing his tippee to dispose of the other half.

Goffer, Cutillo, Goldfarb and others were also named in a criminal complaint filed today by the U.S. Attorney for the SDNY.

To my knowledge, it is extremely difficult for an issuer to successfully sue an analyst for a negative research report.  This daunting challenge is not stopping Hertz Global Holdings, however, in a new case reportedly filed on Monday of this week.

On September 15, research firm Audit Integrity issued a report listing Hertz and 19 other large companies as “likely to go bankrupt or suffer severe financial distress.” On September 22, Hertz shot back, demanding that Audit Integrity retract the report and accusing the firm of reaching “incomplete and misleading conclusions.”

Following the September 22 letter, Hertz then sued Audit Integrity for defamation and trade libel in the Superior Court of New Jersey.  Corporate Counsel reports that the lawsuit reportedly seeks financial damages, a retraction and an apology, and attorney fees and costs. Audit Integrity, however, states that it “firmly stand[s] behind our methodology and findings, and will vigorously defend ourselves against this unwarranted litigation.”

After reviewing the SEC Inspector General’s Madoff report containing what he considered to be the SEC’s “monumental incompetence,” Sen. Charles Schumer (NY) said today that he will soon introduce legislation that would allow the SEC to fund itself.  Sen. Schumer said that he will introduce the legislation when Congress returns next week.  Being self-funded, which SEC Chairman Mary Schapiro and Commissioner Luis Aguilar have been suggesting lately, would mean the SEC would no longer be part of the budget and appropriations process, but would use the transaction fees paid by registrants.

Schumer believes that self-funding would increase the SEC’s funding substantially.  For a comprehensive discussion including my take on the self-funding issue, look for my upcoming column that will be published in the September 9 Compliance Week newsletter and here at ComplianceWeek.com.

I’m pretty much flabbergasted to learn that (a) someone saw fit to write a play about the Enron scandal, and (b) it is getting rave reviews!

Via Enforcement Action’s London bureau (actually, via the Twitter feed of Werner Kranenburg, of London), I learned today that “Enron” the play opened last month in Chichester and starts a run in London in September.  The Guardian called Enron “an exhilarating mix of political satire, modern morality and multimedia spectacle.”