Ugh.
Prosecutors filed charges against 30 people who allegedly participated in an insider trading scheme that involved several major corporate law firms. The defendants include corporate attorneys, who allegedly exploited confidential information from nearly 30 merger and acquisition deals. Charges were filed by the Department of Justice and the Securities and Exchange Commission.
At the center of the scheme, prosecutors identified Nicolo Nourafchan, of Los Angeles who worked at Sidley Austin, Latham & Watkins, Cleary Gottlieb, and Goodwin Procter. Gabriel Gershowitz, who is now a cooperating witness, worked at Willkie Farr & Gallagher in New York.
As items of disclosure I used to work at one of those firms and Mrs. Compliance Building currently works at one. The firms are each identified as a “Victim Law Firm” in the indictment. Six law farms are identified as victims in the indictment.
According to the indictment, Mr. Nourafchan took advantage of the document management system at the victim law firms. He dug around in documents for the matters and found tradeable information. Those document management systems (at least the good ones) log who accesses the documents. It’s easy to piece together Mr. Nourafchan’s log to see him looking at a bunch of documents in matters on which he is not staffed.
It’s the classic push-pull of information governance. You restrict document access to a small group of people that should have access. Then you run smack into trouble as the deal staffs up and trigger IT resources for control rights as the matter’s staffing grows. Even if they fall good practice and use code names, a smart person can dig around enough to enough information to piece things together.
I’m sure all the firms have strict policies on the misuse of material non-public information. I’m sure Mr. Nourafchan knew that. I’m sure all of the victim law firms cooperated with the investigation.
Policies are likely in place. Procedures are in place. Training is in place. At some point you need to rely on your employees to not act like criminals. In this case, Mr. Nourafchan acted like a criminal (allegedly).
Sources:
- Thirty Individuals Charged in Global Insider Trading Scheme Netting Tens of Millions in Illicit Profits DOJ Press Release
- First indictment
- Second indictment
- SEC Charges 21 Individuals with Alleged Wide-Reaching Insider Trading Scheme
- SEC Complaint
- Former Biglaw Attorney Allegedly Turned His Résumé Into A Decade-Long Insider Trading Operation by Kathryn Rubino in Above The Law
- Dozens charged in global insider trading ring that profited off deals involving Mass. tech companies, corporate law firm by Camilo Fonseca in The Boston Globe
- Former Willkie Farr lawyer turns cooperating witness in insider trading probe by Nate Raymond for Reuters