Broker/Dealer Investment and Securities Fraud Litigation and FINRA Arbitration Lawlyer, Russell L. Forkey, Esq.

February, 2012:

SEC v. Cutillo et al., Civil Action No. 09-CV-9208 (S.D.N.Y.) (RJS)

Former Traders Craig Drimal and David Plate Settle SEC Insider Trading Charges

The Securities and Exchange Commission recently announced that the Honorable Richard J. Sullivan of the United States District Court for the Southern District of New York, entered judgments against David Plate and Craig Drimal in SEC v. Cutillo et al., 09-CV-9208, an insider trading case the SEC filed on November 5, 2009. The SEC charged Drimal, a former trader who worked out of the offices of Galleon Management, LP, and Plate, a former proprietary trader at the broker-dealer Schottenfeld Group, LLC, with trading on inside information related to corporate acquisitions.

The SEC’s complaint alleged that Arthur Cutillo, a former attorney with the law firm Ropes & Gray LLP, misappropriated from his law firm material, nonpublic information concerning the potential acquisitions, and tipped the inside information, through another attorney, to Zvi Goffer, a proprietary trader at Schottenfeld, in exchange for kickbacks. The complaint further alleged that Goffer tipped the information to a number of individuals, including Drimal and Plate. As alleged in the complaint, Drimal traded on, and tipped, inside information in advance of the announced acquisitions of Avaya Inc. in June 2007, 3Com Corp. in September 2007 and Axcan Pharma Inc. in November 2007, and Plate traded on inside information in advance of the Axcan announcement.

To settle the SEC’s charges, Drimal and Plate each consented to the entry of a final judgment that: (i) permanently enjoins each from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and (ii) orders each to pay disgorgement plus prejudgment interest. The final judgment against Drimal orders disgorgement of $6,711,805, plus prejudgment interest of $970,481. The final judgment against Plate orders disgorgement of $134,983, plus prejudgment interest of $17,460. In related administrative proceedings, Drimal and Plate each consented to the entry of an SEC order barring each from association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent, and barring each from participating in any offering of a penny stock. The SEC previously announced the entry of a judgment against Plate in a separate case alleging insider trading in connection with other securities. See SEC v. Galleon, LP, et al., No. 09-CIV-8811 (S.D.N.Y.) (JSR).

In related criminal cases, Drimal and Plate previously pled guilty to charges of securities fraud and conspiracy to commit securities fraud. United States v. Craig Drimal, 10-CR-0056 (S.D.N.Y.) and United States v. David Plate, 10-CR-0056 (S.D.N.Y.). Drimal was sentenced to a five and one-half year prison term and ordered to pay criminal forfeiture of $11,000,000. Plate was sentenced to six months of home confinement and three years probation, and ordered to pay criminal forfeiture of $289,000.