4 Admit Conspiracy In Stock-Tip Case
Friday, February 9, 2007
A former pharmaceutical executive and two of his sons pleaded guilty yesterday to conspiracy charges for engaging in what authorities called a "brazen" scheme to profit more than $2 million from illegal stock tips passed among the family members and their friends.
Zvi Rosenthal, 62, a former vice president at Taro Pharmaceutical Industries of Hawthorne, N.Y., shared confidential information about the generic-drug maker's products and financial condition with his sons Amir, 29, and Ayal, 26, more than a dozen times from 2001 to 2005, according to securities regulators.
The three men and Amir Rosenthal's friend David Heyman, 29, pleaded guilty to a single count of conspiracy to commit securities fraud yesterday in U.S. District Court in Brooklyn, N.Y. Each defendant faces a maximum prison term of five years and a $250,000 fine when he is sentenced in May, U.S. Attorney Roslynn R. Mauskopf said.
Securities and Exchange Commission officials yesterday filed related civil insider-trading charges against the men and several of their alleged confederates, including Oren Rosenthal, 30, Rosenthal's eldest son, and Bahram Delshad, 55, Amir Rosenthal's father-in-law.
Mark K. Schonfeld, director of the SEC's Northeast Regional Office, said the case is particularly disturbing because it appeared to be a "family business based on insider trading."
Members of the Rosenthal family and many of their friends worked as lawyers and accountants at respected businesses, including the accounting firm PricewaterhouseCoopers. They were people "who had every reason to know better," said Bruce Karpati, an assistant regional director at the SEC.
The Rosenthals created a hedge fund, Aragon Partners, to hide the source of their stock trades from authorities, according to court papers. Hedge funds are investment pools designed for wealthy individuals and are subject to less oversight than other investment vehicles. The men also traded using sophisticated options contracts, rather than run-of-the-mill shares of Taro and other stocks, to avoid detection, regulators said.
Zvi Rosenthal engaged in some of the improper trades when he was on probation for making false claims to the Defense Department while employed at a contractor that made military uniforms, according to the 51-page SEC complaint. He resolved that case by pleading guilty to a single felony false-claims charge in 2000. At the time, Zvi Rosenthal also agreed to a $20,000 fine and three years of probation, including six months of home confinement and electronic monitoring.
Amir Rosenthal, a former corporate lawyer at a large New York law firm that prosecutors did not identify, received kickbacks from two of the people with whom he shared confidential information. A friend gave him more than $6,300 in cash to buy a plasma television, and Delshad gave him $66,000 in installments routed through Delshad's children, SEC lawyers said.
In all, the family members and their friends collected more than $1.5 million in profit and avoided millions of dollars more in potential losses by trading on confidential tips, for a total of nearly $4 million, according to regulators.
Paul Shechtman, a lawyer for Amir Rosenthal, said, "I've never seen so much hard-earned human capital lost in one day."