Wall Street's bad guys could be at it again.
In this case, it's another potential significant insider trading scandal--one of several I've discovered that are under investigation.. The most recent one centers on one of the year's biggest and most publicized corporate acquisitions--personal computer giant Dell's $3.9 billion takeover of Perot Systems Corp., which was founded by its chairman emeritus and former presidential candidate, Ross Perot.
I've learned authoritatively that the Securities and Exchange Commission in recent days has kicked off an investigation into the trading in the shares of Perot Systems, a worldwide provider of information technology services and business systems, prior to the public announcement of the transaction on September 21.
In brief, the agency--in an inquiry very recently sent to the brokerage community--is seeking the names of clients, both here and abroad, who traded in Perot between July 21 and September 28. Its obvious goal is to determine whether anyone had knowledge of that deal in advance of its public dissemination and illegally traded on it.
The SEC, as is usually the case, was as mum as a sphinx when asked about the investigation. "We don't comment on investigations," a spokesman said. A regulatory contact, however, confirmed the trading probe. Further, I have obtained a copy of an internal SEC document, which specifically named Perot's shares as the subject of an SEC investigation. What the agency particularly wants to know is who traded in Perot in the roughly two months prior to the public disclosure of the deal.
Whoever did buy Perot shares in that period--and held on until the deal was announced--made an absolute killing since the stock, three days before the Perot-Dell agreement was officially announced, closed Friday, September 18, at $17.91 a share. Since Dell's announced $3.9 billion offer for Perot on the following Monday was equivalent to $30 a share, a 68% premium to its Friday close, Perot's stock, as one might expect, immediately skyrocketed. It's presently trading at $29.92.
I've also obtained copies of SEC documents which show the commission has commenced a number of other trading investigations, as well, involving the securities of several other well known companies that have been taken over. Noteworthy in this respect are those companies involved in such giant buyouts as the $52 billion acquisition of Anheuser-Busch by Belgium-based InBev, Merck's $41 billion takeover of Schering-Plough and Walt Disney's $4 billion purchase of Marvel Entertainment.
SEC inquiries as to who traded in these acquired companies were all sent to brokerages within roughly the last six weeks.
Likewise, the commission recently once again sent inquiries in the same period to brokerages seeking trading information in the securities of Merrill Lynch and Countrywide Credit, both of which were acquired by Bank of America.
It should be duly noted here that these are not investigations of the companies themselves, but rather a pursuit of investors who may have violated the securities laws.
These revelations of SEC trading investigations come on the heels of a major insider trading scandal centering on Raj Rajaratnam, the billionaire co-founder of the Galleon Group, a hedge fund with about $3.7 billion of assets that's currently closing down.
On October 16, Rajaratnam, a native of Sri Lankan, and five others, including two from another hedge fund, NewCastle Partners, and an executive of IBM, were arrested by Federal officials. The SEC has charged the five with illegally trading on inside information on various companies, including Google and Advanced Micro Devices. Rajaratnam is alleged to have paid cash and favors to insiders in return for information and made more than $20 million in assorted trades.
All of this questionable investment behavior led me to wonder why there are so many bad guys on Wall Street. I once put that question to veteran stockbroker Malcolm Lowenthal of Kern, Suslow Securities, who came up with what I thought was a classic answer. "It's because," he said, "our product is money and money attracts scum."
Write to Dan Dorfman at Dandordan@aol.com