How is the federal government doing in its highly publicized battle to crack down on insider trading? Not too badly, according to a recent study by NERA Economic Consulting.
New York-based NERA is a global consultancy with more than 500 employees and offices worldwide. One of the many things it does is keep track of settlements between the Securities and Exchange Commission and individuals or corporations. NERA maintains a proprietary database of SEC actions, drawn from litigation releases and administrative proceedings documents.
For the first half of Fiscal Year 2012, NERA found the SEC made settlements in securities fraud cases involving 268 individuals. That puts the agency on track to make 527 settlements with individuals during the whole year, marking a 20 percent increase over 2011.
The median value of settlements with individuals was $190,000, although some were much higher. This is the third straight year that individual settlement values have increased.
NERA’s results of SEC settlements are released twice yearly. Current results of the study, conducted by the consultancy’s James Overdahl and Elaine Buckberg, conclude that the war on inside trading – being waged by the SEC, FBI, and federal prosecutors – is working.
“Allegations of insider trading are largely driving the increase in individual settlements,” the authors said.
Including agreements between the SEC, individuals, and corporations, NERA is predicting 758 settlements in 2012, or 13 percent more than 2011. That would also make 2012 the biggest year for settlements since 2005.
Settlement are also up for Ponzi schemes and cases involving “misstatements made by public companies,” the study said. In the first half of 2012, cases of companies involved with Ponzi schemes grew by 56 percent.
The SEC’s largest settlement reached this year has been an agreement for Citigroup Global to pay $285 million, on charges that it sold toxic collateralized mortgage debt, simultaneously short-selling the same securities.
Citigroup agreed to pay the penalty without admitting or denying guilt, but the settlement is now on hold after being derailed in court by U.S. District Judge Jed Rakoff.
Aside from Citigroup, the largest settlements with companies this year have been American International Group, Inc. ($800 million); WorldCom, Inc. ($750 million); and Goldman, Sachs & Co. ($550 million).
The largest settlements with individuals have involved Roys Poyiadjis, $200 million, and Charles R. Homa, $193 million.
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James Welsh is a financial writer specializing in compliance and securities fraud issues. He also authors the “Top 10” column at www.thestreetsweeper.org, and has held staff editing and writing positions at newspapers including The Times-Picayune of New Orleans and the Orange County (Calif.) Register.