The sentencing of insider trading cases involving Primary Global Research (PGR) has begun. Daniel DeVore, an expert affiliated with PGR who cooperated with prosecutors was sentenced to disgorge the payments he received from PGR plus interest, totaling slightly over $150,000. He was also barred from acting as a director or officer of a public company and enjoins him from further securities laws violations. Because he cooperated with the SEC, he was not ordered to pay a civil penalty. Sentencing under criminal statutes was postponed in DeVore’s case as federal prosecutors asked that sentencing be postponed for three years to allow the investigation, which already has been going on for three years, time to run its course.
The SEC alleged that DeVore, a Global Supply Manager at Dell, provided PGR clients with confidential information about Dell’s internal sales forecasts as well as information about the pricing and volume of Dell’s purchases from its suppliers. From 2008 to 2010, DeVore received approximately $145,000 for talking to PGR and its clients.
In the last 18 months, 49 defendants have been charged in connection with insider trading by hedge funds. Of those, 46 have either pleaded guilty or been found guilty after trial. Included in these totals are 14 actions brought in connection with Primary Global Research (PGR). 13 of the 14 have pleaded guilty. 6 clients of PGR, 5 experts affiliated with PGR and 2 employees of PGR have pleaded guilty. The holdout is James Fleishman, a salesperson for PGR, who will go to trial next month.
There have been 3 additional actions involving expert networks: an expert originally sourced by Guidepoint Global – Ives Benhamou – pleaded guilty. [Guidepoint Global was not implicated in the case; Benhamou was careful to pass inside information outside Guidepoint Global’s network.] The portfolio manager who received the inside information from Benhamou – Chip Skowron – has not pleaded guilty. James Silverman, portfolio manager of Risk Reward Capital, a hedge fund with $24 million in capital, was charged by Massachusetts securities regulators with obtaining inside information on two pharmaceutical companies through Guidepoint Global.
An advisory from Gibson Dunn recently cautioned clients on the use of expert networks: “These cases demonstrate the unique risks created by the use of expert networks. It is essential that advisers that permit the use of expert networks have in place comprehensive policies and procedures to mitigate those risks. These may include procedures at the front end to vet the use of particular networks, as well as sample back testing of trades in securities discussed with expert consultants.”