The Securities and Exchange Commission sued a former Deloitte Tax LLP partner and his wife, Arnold and Annabel McClellan of San Francisco, for tipping off family members in London about coming mergers and acquisitions. The scheme allegedly netted $20 million in insider trading profits.
A federal grand jury has also indicted Annabel McClellan on the grounds of criminal obstruction in relation to the SEC investigation, according to court documents.
In its suit, the SEC alleges that the McClellans gave inside information to Annabel's sister and brother-in-law in London, James and Miranda Sanders, about at least seven acquisitions in the works at Deloitte’s clients.
James then allegedly passed those tips to his colleagues at his derivatives trading firm in London, Blue Index Ltd., now defunct. The scheme involved kickbacks to the McClellans on profits from the trades made on nonpublic information. “Sanders's tippees and clients made approximately $20 million in U.S. dollars by trading on the inside information,” the SEC says.
The U.K.’s market regulator, the Financial Services Authority, also announced charges Tuesday against the Sanders and colleagues of James Sanders who traded on the nonpublic information, the SEC said.
The former Deloitte executive, McClellan, had worked on a number of prominent deals for blue chip clients like Microsoft (MSFT) and the private equity firm Hellman & Friedman. For example, McClellan is accused of passing on illegal tips about Microsoft’s 2007 acquisition of aQuantive for $6 billion.
Other information concerned pending transactions involving Kronos Inc. and Getty Images, the SEC said.
Specifically, the SEC says McClellan “provided advance notice of at least seven confidential acquisitions planned by Deloitte's clients to Annabel's sister and brother-in-law in London.”
The SEC’s suit says that “after receiving the illegal tips, the brother-in-law took financial positions in U.S. companies that were targets of acquisitions by Arnold McClellan's clients. His subsequent trades were closely timed with telephone calls between Annabel McClellan and her sister, and with in-person visits with the McClellans.”
The SEC is seeking financial penalties and the disgorgement of illicit profits.
"The McClellans might have thought that they could conceal their illegal scheme by having close relatives make illegal trades offshore. They were wrong," said Robert Khuzami, director of the SEC's enforcement division said in a statement. "In this day and age, whether it's across oceans or across markets, the SEC and its domestic and foreign law enforcement partners are committed to identifying and prosecuting illegal insider trading."