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In 2006, six individuals were criminally charged in an inside trading scheme involving information from Business Week before the issues went public, tips from Merrill Lynch’s investment banking department, and confidential information from a grand juror. The efforts were described by an SEC official in 2006 as “one of the most widespread, varied and premeditated insider-trading rings”. David Pajčin and Eugene Plotkin, two employees of Goldman Sachs, hired Nickolaus Shuster and Juan Renteria to work at the Business Week printing plant and provide them with non-public information from advance copies of Business Week. Pajčin and Plotkin also paid Stanislav Shpigelman, a Merrill Lynch banker and friend, to provide them with tips on upcoming mergers and acquisitions. In addition, the men received confidential information from Jason Smith, a high school friend of Pajčin, who served on a grand jury. Pajčin and Plotkin then used the information from these sources to trade in multiple accounts, including those set up on behalf of Pajčin’s aunt.

Background

Pajčin, a Croatian immigrant and Notre Dame graduate, and Plotkin, a Russian immigrant and Harvard graduate, met when they were both working at Goldman Sachs in the early 2000s. Plotkin introduced Pajčin to his friend Stanislav Shpigelman, a Merrill Lynch investment banker, in 2004 at a Russian day spa in lower Manhattan. Pajčin knew Jason Smith, a postal worker, from high school and was friends with Monika Vujovic, also a Croatian immigrant who worked as an exotic dancer.

Investigation

The investigation of Pajčin, Plotkin, and their co-conspirators began after regulators at the U.S. Securities and Exchange Commission noticed suspicious timing and unusually high trading volume before a corporate acquisition announcement. Pajčin’s aunt, Sonja Antičević, a 63 year old retired tailor from Omiš, Croatia who was living on a pension of about $263 a month and occasionally working as a cleaning lady, was found to have bought $130,000 of Reebok call options in the 2 days before Reebok was taken over by Adidas-Salomon AG and captured a profit of more than $2 million on that investment. She subsequently told reporters that she "never bought a stock” and had “no idea how that works."

In total, 8,675 Reebok options were traded on the two days before the merger announcement, more than 50 times the usual amount. The SEC discovered that a number of accounts involved in trading Reebok options over those two days had made other parallel trades over the prior months. This included accounts belonging to Pajčin’s girlfriend, Monika Vujovic, as well as several other Croatian nationals. Pajčin was subsequently arrested and began to cooperate with federal prosecutors.

Insider Trading

According to the federal investigation headed by the SEC and Assistant United States Attorney Benjamin Lawsky, Pajčin and Plotkin collected inside information through three schemes. In one scheme, Pajčin and Plotkin persuaded Stanislav Shpigelman, a mergers and acquisitions analyst at Merrill Lynch, to provide tips on upcoming mergers and acquisitions in return for a share of the trading profits. In a second scheme, Pajčin and Plotkin recruited Nickolaus Shuster and Juan Renteria to obtain jobs at a Quad/Graphics plant in Hartford, Wisconsin, where Business Week is printed for distribution in the northern United States. Shuster and Renteria acquired advance copies hot off the press and tipped Pajčin and Plotkin on the names of companies discussed favorably in the “Inside Wall Street” column before the magazine became public. In a third scheme, Jason Smith, a grand juror, passed illegal tips to Pajcin and Plotkin.

Pajčin and Plotkin traded on the inside information, initially in an account in Pajčin’s name and later, in accounts in the names of others in Europe and the United States, such as Pajčin’s aunt, Sonja Antičević and Pajčin’s girlfriend, Monika Vujovic. Pajčin and Plotkin also tipped several individuals in the United States and Europe in return for a share of their trading profits. In total, the group traded in at least 25 stocks within one year based on inside information obtained through these three schemes.

Aftermath and Sentencing

More than $6 million, meaning nearly all of the profits from the conspiracy were secured by federal authorities who immediately moved to freeze bank accounts when the fraud was discovered.

Pajčin was arrested in 2005 and cooperated with the government. All of his co-conspirators were arrested in 2006. After pleading guilty to charges in the case in 2008, Pajčin was sentenced to time served. Several months after his release, Pajčin broke the terms of his probation and fled the United States. A warrant was issued for his arrest in April 2008. In 2010, Pajčin was ordered to pay a $7.7 million default judgment and $20.8 million in fines to the SEC.

Plotkin pleaded guilty to conspiracy to commit securities fraud and eight counts of insider trading. In 2008, he was sentenced to 57 months imprisonment and ordered to pay a $10,000 fine.

Shpigelman pleaded guilty to conspiracy to commit securities fraud and insider trading. In 2007, he was sentenced to 37 months imprisonment.

Smith pleaded guilty to felony criminal contempt. In 2006, he was sentenced to 33 months imprisonment and ordered to pay a $6,000 fine.

Shuster pleaded guilty to conspiracy to commit securities fraud and insider trading. In 2008, he was sentenced to time served.

Renteria pleaded guilty to conspiracy to commit securities fraud and insider trading. In 2008, he was sentenced to 2 years probation.

References

1. "SEC Complaint Charges International Insider Trading Ring, Including Personnel at Goldman Sachs and Merrill Lynch". Washington, DC: Securities and Exchange Commission. 11 April 2006. Retrieved 27 February 2012. {{cite web}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
2. Anderson, Jenny (April 30, 2006). "An Insider Trading Case with a B-Movie Plot". New York Times. Retrieved February 29, 2012.
3. Anderson, Jenny (April 12, 2006). "2 Wall Street Employees Charged With Insider Trading". New York Times. Retrieved April 13, 2013.
4. Siegel, Aaron (February 27, 2007). "Analyst Flattered, Intimidated Into Plot". Investment News. Retrieved April 13, 2013.
5. "Postal Worker Charged in Trading Scam". February 11, 2009.
6. Anderson, Jenny (April 15, 2006). "Seamstress Clue Unravelled $9M Wall Street Fraud". Sydney Morning Herald. Retrieved April 13, 2013.
7. Gimbel, Barney (October 4, 2006). "Partners in Crime". Fortune. Retrieved April 13, 2013.
8. Masters, Brooke (April 12, 2006). "3 Accused of Running Big Inside Trading Scheme". Washington Post. Retrieved April 13, 2013.
9. Farrell, Greg (May 11, 2006). "Juror Accused of Inside Trading". USA Today. Retrieved April 13, 2013.
10. Abelson, Jenn (August 6, 2005). "US Freezes Reebok Investor's $2M Profit". Boston Globe. Retrieved April 13, 2013.
11. Noon, Chris (August 8, 2005). "Croatian Retiree Denies Trading in Reebok". Forbes. Retrieved April 13, 2013.
12. "Mystery Of Cleaner Who Cashed In On Reebok". August 9, 2005. Retrieved April 13, 2013.
13. "SEC Charges 8 More In Reebok Trading Case". August 19, 2006. Retrieved April 13, 2013.
14. Shell, Adam (August 18, 2005). "Eight More Charged In Reebok Case". USA Today. Retrieved April 13, 2013.
15. "2 Arrested on Charges of Insider Trading". New York Times. April 11, 2006. Retrieved April 13, 2013.
16. Bansal, Paritosh (January 18, 2008). "No Further Jail Time For Ex-Analyst In Trading Case". Reuters. Retrieved April 13, 2013.
17. De La Merced, Michael (November 4, 2008). "Insider-Trading Mastermind May Have Fled U.S." New York Times. Retrieved April 13, 2013.
18. Stempel, Jonathan (June 3, 2010). "Ex-Goldman Analyst Who Fled Must Pay $27.8 Mln". Reuters. Retrieved April 13, 2013.
19. "Inside Trader Sentenced to 57 Months". January 4, 2008.
20. "Ex-Merrill Analyst Sentenced". Boston Globe. January 6, 2007. Retrieved April 13, 2013.
21. "Postal Worker Sentenced in Insider Trading Case". New York Times. December 12, 2006. {{cite news}}: |access-date= requires |url= (help)
22. "Business Week Printing Plant Employee Nickolaus Shuster Pleads Guilty to Fraud". Media Life Magazine. October 24, 2006. Retrieved April 13, 2013.
23. Neumeister, Larry (July 11, 2008). "Forklift Operator Won't Go To Prison for Insider Trading". Observer Today. Retrieved April 13, 2013.

External links

• New York Magazine, White Men with Money, The Dance Ends for Eugene.
• American Greed Episode 22:A Scam Exposed: Strippers and Inside Trading

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• People convicted of insider trading