WASHINGTON/NEW YORK - The U.S. government on Friday filed criminal and civil charges accusing a former executive of insider trading in advance of EBay Inc's purchase of his e-commerce company.
The case against Christopher Saridakis, 45, is also notable because it marks the first time the U.S. Securities and Exchange Commission reached a so-called "non-prosecution" agreement with an individual, an unnamed trader who it said provided "early, extraordinary and unconditional" cooperation.
Federal prosecutors in Philadelphia charged Saridakis, who led the marketing solutions division of GSI Commerce Inc, in a so-called criminal information with securities fraud for leaking material nonpublic information in March 2011 about EBay's plan to buy his company.
Investigators said the resident of Greenville, Dela., encouraged two relatives and two friends to trade on his tips, leading to more than $300,000 US of illegal profits.
GSI shares rose nearly 51% on March 28, 2011, after EBay, the online retailer, announced its $1.96 billion purchase of the King of Prussia, Penn.-based company.
The SEC said Saridakis agreed to pay $664,822 and accept an officer and director ban to settle its charges. The cooperating defendant and five other people agreed to pay more than $490,000 to settle related SEC charges. Three of these defendants got lessened penalties because they cooperated with the regulator.
CO-OPERATION YIELDS BENEFITS
The U.S. Department of Justice has long used deferred prosecution and non-prosecution agreements to encourage and reward cooperation in criminal investigations, and the SEC in January 2010 said it would also use them in its civil probes.
"Although Saridakis' tips spun a web of illegal trading, some of the downstream tippees substantially assisted in our investigation while others hindered it," Andrew Ceresney, head of the SEC's enforcement division, said in a statement.
"The reduction in penalties for those tippees who assisted us, together with the non-prosecution agreement for one of the traders, demonstrate the benefits of cooperating with our investigations," he added. "The increased penalties for others highlight the risks of impeding our work."
Saridakis could face up to 20 years in prison and a $5 million fine if convicted in the criminal case, prosecutors said.
Richard Zack, a partner at Pepper Hamilton representing Saridakis, said: "Chris accepts full responsibility for his conduct in this matter, and has done everything he can to make the situation right. He will continue to do so. He deeply regrets the effect of his mistake on his family and friends."
According to the SEC, Saridakis tipped his friends Jules Gardner, a retired marketing executive, and Suken Shah, a doctor, about the EBay acquisition.
It said Shah then passed the tip to his brother and fellow doctor Shimul Shah, who in turn tipped the individual who entered the non-prosecution agreement.
According to the SEC, Saridakis and Gardner exchanged 23 text messages about the takeover on the night of March 20, 2011, eight days before the transaction was announced.
"Do you own our shares?" Saridakis allegedly messaged.
"No, but it's cheap," Gardner responded.
"You should ... Soon."
"Tomorrow AM under $20."
The other settling traders were Oded Gabay, a hairdresser who learned of the proposed acquisition from a different source, and Aharon Yehuda, who operated a diamond business and had been tipped by Gabay, the SEC said.
Gardner lives in Villanova, Pennsylvania; Suken Shah in Wilmington, Delaware; Shimul Shah in Cincinnati; and Gabay and Yehuda in New York, the SEC said. Gardner and Gabay received lessened penalties because they cooperated, it added.
Mark Jay Krum, a partner at Diamond McCarthy who is representing Gardner, said his client is cooperating in an ongoing investigation with the U.S. government.
Lawyers for the remaining defendants did not immediately respond to emails seeking comment.