Monthly Archives: December 2010

Primary Global Research Consultant Arrested Today in Continuing Insider Trading Probe

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Today federal authorities arrested Winifred Jiau, a technology expert who was employed as a consultant at Primary Global Research LLC, on charges related to her alleged involvement in an insider trading scheme.  Jiau is the seventh individual associated with Primary Global Research to be charged of insider trading beginning last month.  Primary Global Research, an expert-network firm based in Mountain View, California, specialized in providing investors with information from public company employees.  Jiau, who was hired as a consultant at Primary Global Research, allegedly sold inside information to portfolio managers at hedge funds that paid her over $200,000 between 2006 and 2008.

Jiau has been charged with both conspiring to commit securities fraud and engaging in securities fraud by selling material nonpublic information about publicly traded companies.  The latter charge could potentially involve up to 20 years in prison and a $5,000,000 fine.

No New Funds Expected for SEC and CFTC

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The Wall Street Journal Online reports that the Senate voted 82-14  this morning to end debate on a continuing resolution for $250 billion to fund the government through March 4, 2011.  It is expected that, after a final vote in the Senate, the resolution will be sent to the House of Representatives for a vote prior to the expiration of the current stop-gap measure at midnight tonight.

According to a Senate Appropriations Committee summary produced late Sunday, the resolution provides a small increase of $1.16 billion over 2010 spending, but it appears that there will be no new funds to help the SEC or CFTC with regulatory reform under Dodd-Frank.  According to the Wall Street Journal Online, the proposed spending plan would give the SEC authority to set up five offices mandated by Dodd-Frank, including a whistleblower office.

A $1.1 trillion omnibus bill, supported by the Democrats and hailed by the SEC and CFTC, would have included an 18% increase in the SEC’s budget ($200 million in new funding), and a 69% increase in the CFTC’s budget ($100 million of additional money).  That bill failed to garner sufficient support and, last Thursday night,  the Dow Jones Newswire reported that  Senate Majority Leader Harry Reid (D-Nev.) had announced that the Senate would focus instead on a short-term funding measure.  At that time, it was reported that the Senate Republicans were considering only a resolution proposed by Minority Leader Mitch McConnell (R-Ky.), which would have simply maintained funding at the 2010 budget levels until February 18, 2011.  The House’s version of a new measure, released in early December, would have shifted more funds to the SEC and the CFTC while maintaining the 2010 budget.

The SEC and CFTC had expected to use the new funding under the omnibus bill to allow the agencies to more  effectively carry out their new responsibilities and implement the many new rules under the Dodd-Frank Act.  These include both agencies’ supervision of the over-the-counter derivatives markets and the SEC’s new power to regulate and examine certain private fund advisers and municipal advisers.   Now, it appears that, despite these  new duties, which both SEC Chairman Mary Schapiro and CFTC Chairman Gary Gensler have said require hiring hundreds of new staff members and significant upgrades in technology, the SEC and CFTC will  be forced to operate within their 2010 budgets.

Although the Obama administration could shift money around to help the SEC and CFTC, it is likely that the Republicans, who did not support Dodd-Frank and will take control of the House of Representatives in January 2011, will attempt to block any such shifts through legislation.

The Wall Street Journal Online reports that Senate Finance Committee Chairman Max Baucus (D., Mont.) remains confident that the Democrats could still win funding battles for financial regulation.  Sen. Richard Shelby (R., Ala.), however, is quoted as  saying, “It’s going to be a big political fight. I think the odds shift toward Republicans.”

Senate Spending Bill would Increase SEC and CFTC Budgets; SEC and CFTC Meetings this Week

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Senate Spending Bill

Reuters is reporting that a Senate spending bill released today will give an increase of 18% in the SEC’s 2011 budget  to $1.3 billion and an increase of 69% in the CFTC’s 2011 budget to $286 million (in excess of the funding requested by that agency).  These increases should give the agencies the monies they need to implement the many new rules being put in place pursuant to Dodd-Frank, in particular the rules governing the over-the-counter derivatives market.  Both agencies had warned of delays resulting from lack of funds and the SEC (whose fiscal year began October 1) recently announced that, because of budget uncertainty, it was deferring setting up new offices, including the whistleblower office and those overseeing credit rating agencies and municipal securities.

In order for the agencies to receive their funds, the Senate must now pass the bill and then merge its bill with the House spending bill which has already been passed and includes large increases for these agencies.

SEC Open Meeting

Among the items to be discussed at tomorrow’s Open Meeting at the SEC:

  • Rule and form amendments to establish a process for the submission for review of security-based swaps for mandatory clearing and notice filing requirements for clearing agencies; and
  • An end-user exception to mandatory clearing of security-based swaps for certain counterparties.

CFTC Public Meeting

The CFTC will hold a public meeting on Thursday, December 16, to consider rules whose effect will be to limit speculation in the commodity derivatives markets.  The CFTC plans to propose rules that will set:

  • “Position limits” on how many physical commodity derivative contracts a single speculator can hold;
  • Confirmation, portfolio reconciliation and portfolio compression requirements for swap dealers and major swap participants;
  • Risk management requirements for derivatives clearing organizations;  and
  • Core principles and other requirements for swap execution facilities.

The CFTC is expected to produce new rules by late January.

Analyst Exposes Names of Contacts and Clients in a Blast Email

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John Kinnucan, a research analyst and principal at Broadband Research, gained industry notoriety when he refused to cooperate with the Federal Bureau  of Investigation’s widespread investigation into insider trading and would not wiretap conversations with one of his clients. 

Mr. Kinnucan who has been very vocal in the media, also circulated a blast email to clients and contacts informing them of his decision not to work with federal authorities.  Reuters  gained access to Kinnucan’s email recipient list (which failed to use blind carbon copy) and noted that in addition to those associated with hedge funds and mutual funds, the email may have gone to some individuals in finance not previously considered by federal authorities for investigation into insider trading.   Advisory firms like Friess Associates and Sonar Capital Management, giant hedge fund Citadel Group, and money manager Ameriprise Financial are just a few that have been revealed.

 According to an article published by Reuters,

“Officials for a few of the funds said that Kinnucan, in disclosing the identity of his clients, may have violated an expectation of privacy that traders and analysts had when they signed up with him.”

Some of Mr. Kinnucan’s current or former clients include SAC Capital Advisors and mutual funds Janus Capital Group and Wellington Management, all of whom have already either been subpoenaed or asked by federal prosecutors to provide information.  As such, it is likely that those email recipients who were not previously affected by the recent insider trading probe are probably anxiously wondering if they too may now receive a visit from federal authorities.