The Securities and Exchange Commission (SEC) utilized data analytics to detect suspicious trading activity and form the basis of three separate insider trading cases announced by the agency Monday.
Among those charged included a former chief information security officer (CISO), an investment banker, and a former Federal Bureau of Investigation (FBI) trainee, “all of whom allegedly shared confidential information with their friends, who then traded on that confidential information,” the SEC said in a press release. The U.S. Attorney’s Office for the Southern District of New York announced parallel criminal charges in each case.
The SEC cited the efforts of its Enforcement Division’s Market Abuse Unit’s Analysis and Detection Center in originating the findings behind the three actions.
The SEC has used data analytics to detect accounting fraud in four separate cases, while the agency combined with the Department of Justice and Commodity Futures Trading Commission in utilizing data analysis to revive precious metals spoofing charges against JPMorgan Chase culminating in a $920 million settlement in September 2020. Regulators are also increasingly expecting compliance departments within public companies and registered investment advisers use data analytics to detect fraud within their organizations.
In all three insider trading cases brought Monday, the SEC seeks to permanently enjoin the defendants from violating federal securities laws and disgorge any ill-gotten gains, as well as pay prejudgment interest.
In the first case, Amit Bhardwaj, CISO at Lumentum Holdings, allegedly shared material nonpublic information (MNPI) about two mergers Lumentum was engaged in with friends Dhirenkumar Patel, Srinivasa Kakkera, Abbas Saeedi, and Ramesh Chitor. With the tips provided by Bhardwaj, the friends traded ahead of two corporate announcements in 2021 by Lumentum to acquire Coherent and later acquire NeoPhotonics Corporation.
The schemes generated more than $5.2 million in illicit profits, according to the SEC’s complaint.
Bhardwaj passed the MNPI along in violation of Lumentum’s policies and procedures regarding the handling of such information, the SEC noted.
The second case involved a pair of friends who worked for unnamed large financial institutions. Investment banker Brijesh Goel and Akshay Niranjan, who was a foreign exchange trader, allegedly earned more than $275,000 in illicit profits from trades in advance of merger announcements Goel learned about in the course of his employment. Niranjan made the trades from February to November 2017 in a brokerage account controlled by his brother, the SEC alleged in its complaint.
In his position at the investment bank, Goel was prohibited from sharing MNPI, and Niranjan did or should have known in his position the information was not public, the agency said.
Former FBI trainee Seth Markin, using information gained from his then-romantic partner who was employed at Merck & Co., allegedly passed on information to his friend Brandon Wong about Merck’s plans to acquire Pandion Therapeutics. Markin earned $82,000 and Wong $1.3 million in illegal profits, the SEC alleged in its third complaint.
Markin’s then-romantic partner worked on the Merck-Pandion deal from the apartment they shared during the Covid-19 pandemic, the SEC stated. The agency said Markin read documents in the Merck employee’s possession regarding the merger without her knowledge or consent.
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