Prosecutors Allege Insider Trading Involving Former Bank of America IT Worker -- Update

By Dave Michaels Features Dow Jones Newswires

A former Bank of America Corp. employee and several friends at prominent Wall Street firms face criminal insider-trading charges over tips about potential mergers gleaned from a confidential deals database.

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Prosecutors unveiled charges against seven people, including Daniel Rivas, a former information technology consultant at Bank of America. Mr. Rivas is alleged to have passed on information from the database to friends, including his girlfriend's father, James Moodhe, according to an indictment made public Wednesday.

The group that traded on the information earned over $5 million by trading in more than two dozen stocks, including shares of Monsanto Co., Cabela's Inc., ADT Corp., according to the indictment.

Mr. Rivas and Mr. Moodhe pleaded guilty in Manhattan federal court last week, according to prosecutors who announced the pleas on Wednesday. A spokesman for Bank of America said Mr. Rivas was fired in April and that the bank cooperated fully with the government probes.

Mr. Moodhe, a former treasurer and assistant controller at interdealer broker Tullett Prebon Financial Services LLC, reaped more than $2 million in profits by using Mr. Rivas's tips to trade stocks and options of at least 25 companies, according to the indictment. A spokesman for TP ICAP, Tullett Prebon's parent company, confirmed that Mr. Moodhe worked there until May. The company declined to comment on the claims against him.

Mr. Rivas, 32 years old, passed the first tip, about the pending purchase of Covance Inc., to Mr. Moodhe in October 2014 after he started dating Mr. Moodhe's daughter, according to a separate civil lawsuit filed Wednesday against Mr. Rivas and the six traders by the Securities and Exchange Commission. Soon after receiving the information, Mr. Moodhe bought 1,000 Covance shares for a cost of about $80,000, according to the complaint. About a week later, he unloaded the shares for a $19,000 profit on the day the deal was announced, according to the SEC.

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Mr. Rivas later moved in with Mr. Moodhe's daughter in a house in New Jersey, prosecutors said. As more tips came from Mr. Rivas, Mr. Moodhe started placing more aggressive trades in call options that pay off if a stock rises above a target price, according to the SEC's complaint.

An attorney for Mr. Rivas didn't return a call seeking comment, and a lawyer for Mr. Moodhe declined to comment.

Mr. Moodhe, 60 years old, also passed some of the information to Michael Siva, a longtime friend who worked as a broker at Morgan Stanley in New Jersey, according to the SEC complaint and records from the Financial Industry Regulatory Authority.

The two men used code phrases to share tips over the phone and met at diners where Mr. Moodhe "read from pieces of paper provided to him by Rivas, which contained detailed information about confidential impending deals," according to the indictment.

Morgan Stanley confirmed that Mr. Siva has worked at the brokerage firm and said he has been placed on administrative leave.

Mr. Siva, 55 years old, used the information to make trades that earned $880,000 for his clients, according to the SEC. In one case, Mr. Moodhe phoned Mr. Siva the day after he received information from Mr. Rivas about Apollo Global Management LLC's $6.93 billion acquisition of ADT Corp.

Mr. Siva purchased 2,100 shares of ADT stock for clients on Feb. 10 and 11, 2016, at about $27 a share, according to the SEC. A week later, the deal was announced at a price of $42 a share, generating profits of $26,400, the SEC said. Mr. Siva couldn't immediately be reached for comment, and law-enforcement officials didn't disclose an attorney for him.

The SEC sued all three men as well as four others who allegedly traded on information that came from Mr. Rivas.

The SEC and prosecutors said Mr. Rivas shared tips with two of the men, Roberto Rodriguez and Rodolfo Sablon, using an encrypted, mobile messaging app that uses a timer to destroy messages. An attorney for Mr. Rodriguez said his client posted a $250,000 bond Wednesday and was released. Mr. Sablon couldn't be reached for comment.

Mr. Rivas also shared tips with another close friend from his childhood in New York City, according to prosecutors.

"The tippers and traders in this case are alleged to have used various methods to try to cover their tracks, but their efforts failed," said Steven Peikin, co-director of the SEC's enforcement division. "These charges reflect our continued use of sophisticated tools to detect and root out secretive and wide-reaching insider trading schemes."

--Michael Rapoport contributed to this article.

Write to Dave Michaels at dave.michaels@wsj.com

(END) Dow Jones Newswires

August 16, 2017 19:48 ET (23:48 GMT)