The Securities and Exchange Commission today charged Renato Negrin, a former portfolio manager at hedge fund investment adviser Millennium Partners LP, and Jon-Paul Rorech, a salesman at Deutsche Bank Securities Inc, with insider trading in credit default swaps (CDS) of VNU NV, an international holding company that owns Nielsen Media and other media businesses.
The SEC's complaint alleges that Rorech learned information from Deutsche Bank investment bankers about a change to the proposed VNU bond offering that was expected to increase the price of the CDS on VNU bonds. Deutsche Bank was the lead underwriter for a proposed bond offering by VNU. According to the SEC's complaint, Rorech illegally tipped Negrin about the contemplated change to the bond structure, and Negrin then purchased CDS on VNU for a Millennium hedge fund. When news of the restructured bond offering became public in late July 2006, the price of VNU CDS substantially increased, and Negrin closed Millennium's VNU CDS position at a profit of approximately USD1.2m.
"This is the first insider trading enforcement action involving credit default swaps," said Scott Friestad, Deputy Director of the SEC's Division of Enforcement. "As alleged in our complaint, Rorech and Negrin checked their integrity at the door and schemed to engage in insider trading of CDS to the detriment of investors and our markets."
James Clarkson, Acting Director of the SEC's New York Regional Office, added:"CDS may still be obscure to the average individual investor, but there is nothing obscure about fraudulently trading with an unfair advantage. Although CDS market participants tend to be experienced professionals, there must be a level playing field with even the most sophisticated financial instruments."
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