WASHINGTON – An analyst at Goldman Sachs (GS), a banker at Merrill Lynch (MER) and a printing plant worker were arrested on Tuesday, charged with participating in an international insider trading ring that netted $6.7 million and involved more than a dozen people.
Authorities said the schemes involved stealing pre-publication copies of BusinessWeek magazine to gain advance knowledge of share tips and persuading an investment banker to pass on details about upcoming mergers.
A third man, Juan Renteria, an employee at a plant that printed BusinessWeek magazine, was arrested in Milwaukee. All three face insider trading and securities fraud charges.
"These defendants developed their sources of information in the hopes of running that insider trading business as a money-making machine, and for a little while it worked, netting millions of dollars," said Michael Garcia, the U.S. Attorney for the Southern District of New York.
The case showed "there are still some people out there even at the biggest and best of Wall Street firms who are motivated by greed, are willing to put their careers and their liberties in jeopardy," Garcia added.
The case is linked to the arrest last year of David Pajcin, a former Goldman employee who allegedly made stock trades from stolen pre-publication copies of BusinessWeek. Pajcin is cooperating with authorities, officials said.
The U.S. Securities and Exchanges Commission said the schemes were orchestrated by Plotkin and Pajcin, who persuaded Shpigelman to provide tips on upcoming mergers in return for a share of trading profits.
In a second scheme, Plotkin and Pajcin recruited two individuals, including Renteria, to obtain jobs at a printing plant, steal advance copies of BusinessWeek and tip them about the names of companies discussed.
The arrests were the result of an eight-month investigation that began in early August 2005.
Plotkin, aged 26, faces a maximum penalty of 70 years in prison; Shpigelman, aged 23, could get up to 55 years; and Renteria, aged 20, could be jailed for 15 years.
All three will be arraigned later on Tuesday.
Separately, the SEC filed civil insider trading charges against Shpigelman, Plotkin, Renteria and a number of people who allegedly received inside tips. These included Pajcin's aunt Sonya Anticevic, a former underwear factory worker living in Croatia.
Plotkin and Pajcin allegedly recruited Merrill Lynch's Shpigelman to pass along inside information about various deals at the investment bank, in exchange for cash payments.
Plotkin and Pajcin traded stocks based on those tips, making at least $6.4 million in illicit gains, according to the complaint.
The deals included Proctor & Gamble Co.'s acquisition of Gillette Co. in January 2005 and Adidas' acquisition of Reebok in August. The Adidas deal allegedly netted them more than $2 million in profit.
In the other scheme, Plotkin and Pajcin allegedly bribed Renteria and Nickolaus Shuster, employed at a Wisconsin printing plant where McGraw-Hill (MHP) Cos. Inc.'s BusinessWeek was produced, to pass along the names of stocks favorably mentioned in the magazine's "Inside Wall Street" column, on the trading day before it hit the newsstands.
The pair traded in approximately 20 different stocks on this basis, earning $340,000 in illicit gains, the complaint said. These stocks included TheStreet.com Inc., PriceSmart Inc. and Symbol Technologies Inc.
In order to boost their combined profits, the pair allegedly tipped off other individuals, including two people in Germany.
A spokesman at Merrill said: "These allegations, if true, represent a serious breach of trust and violation of Merrill Lynch's fundamental principles. We do not tolerate or condone insider trading. This conduct victimizes the company and the clients alike. It is outrageous, if true. We are cooperating with the regulators."
Shpigelman was placed on administrative leave today, he said.
A spokesman for Goldman Sachs said the company has fully cooperated with authorities.