Counsel of Record
- Graham Loomis
- Shawn Murnahan
Securities and Exchange Commission
950 East Paces Ferry Road, N.E., Suite 900
Atlanta, Georgia 30326-1382
Tel: (404) 842-7600
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
|NEWARK DIVISION UNITED STATES SECURITIES AND EXCHANGE COMMISSION||:
|Civil Action No.
|ALDA LTD., CREATIVE EMPIRE GLOBAL LTD., ANTHONY GARY DARK, ENDESO LTD., DAVID ISAAC ETTEDGUI, NACIM OULD KADDOUR, DAVID MORRIS KELLY, MUHAMMAD AMMAR KAHN, JEFFREY ROBERT LEWIS, LOTUS TRADING SAL HOLDING, KASHIF QADRI, AND CHAUDHRY MUHAMMAD ZEESHAN
FIRST AMENDED COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
AND DEMAND FOR JURY TRIAL
Plaintiff United States Securities and Exchange Commission (“SEC” or “Commission”), for its First Amended Complaint against individual defendants Alda Ltd. (“Alda”), Creative Empire Global Ltd. (“Creative Empire”), Anthony Gary Dark (“Dark”), Endeso, Ltd. (“Endeso”), David Isaac Ettedgui (“Ettedgui”), Nacim Ould Kaddour (“Kaddour”), David Morris Kelly (“Kelly”), Muhammad Ammar Khan (“Kahn”), Jeffrey Robert Lewis (“Lewis”), Lotus Trading SAL Holding (“Lotus”), Kashif Qadri (“Qadri”), and Chaudhry Muhammad Zeeshan (“Zeeshan”) (collectively, “Defendants”) alleges as follows:
SUMMARY OF THE ACTION
- This is an insider trading case involving the purchase and sale of the securities of Fortress Investment Group LLC (“Fortress”), a company headquartered in New York whose shares of common stock are traded on the New York Stock Exchange (“NYSE”). Fortress is an investment management firm that services institutional and individual investors.
- The market event at the core of this case is the announcement of Fortress’s acquisition by SoftBank Group Corp. (“SoftBank”). After the U.S. markets closed on Tuesday, February 14, 2017, Japan-based Softbank announced that it had entered into a definitive merger agreement to acquire
Fortress for approximately $3.3 billion in cash (“the Announcement”). According to the Announcement, Fortress shareholders would receive $8.08 per share, which represented a premium of 30% over Fortress’s February 14th closing price of $6.21.
- In the days preceding the Announcement, Defendants, who are foreign traders trading through foreign accounts, amassed large, speculative positions in Fortress stock through derivative securities known as contracts for difference (“CFD”) and spread bets. Both CFDs and spread bets allow traders to speculate in the movement of an equity security on margin and thus require only a small outlay of cash to take large positions betting on the movement of the underlying security. However, if the underlying security moves in the direction opposite to the position taken by the CFD or spread bet trader, the trader must have sufficient funds to pay the entire amount of the losses on the bet.
- Defendants purchased Fortress CFDs and/or and made spread bets on Fortress stock through foreign brokerage firms. These firms hedged their exposure by (i) purchasing Fortress shares on the NYSE through domestic brokerage firms; or (ii) purchasing CFDs or placing orders for Fortress shares through other foreign brokerage firms, which in turn purchased Fortress shares on the NYSE through domestic brokerage firms.
- Defendants took “long” positions in Fortress through their CFD trading and/or spread bets, meaning that their investments in these derivative securities had the potential to appreciate substantially if there was a sudden upward movement of Fortress’s stock price.
- Seemingly on cue, the Announcement was made the day of (or, in some cases, a day or two after) Defendants made their purchases. As a result of the Announcement, Fortress’s share price increased substantially, from a close of $6.21 on February 14th to a close of $7.99 on February 15th. The purchases of Fortress shares on the NYSE that resulted from Defendants’ February 14, 2014 CFD purchases and spread bets comprised a suspiciously high percentage of the total trading volume of Fortress stock on that day, nearly 20%. The Announcement also caused a dramatic rise in Fortress’s trading volume, which increased by 1,672% from February 14th (8,547,319 shares traded) to February 15th (151,447,966 shares traded).
- Defendants promptly closed their CFD and spread bet positions on February 15, 2017, for profits in excess of $3.8 million. Thus, Defendants timed their trading around the Fortress Announcement perfectly and made lottery-like profits virtually overnight.
- The timing, size and profitability of Defendants’ Fortress trades are highly suspicious. One Defendant, Khan, began purchasing Fortress CFDs on February 10, 2014. Based on information obtained from Fortress, the SoftBank acquisition had been in discussions since December 2016, and was initially expected to be finalized over the weekend of February 10-12, 2017. In fact, Fortress’s board had been tentatively scheduled to approve the transaction on February 12th. However, due to several unresolved issues, the transaction was not considered by Fortress’s board on February 12th and the consummation of the deal was in serious doubt at that time, due to the unresolved issues that rose on the 12th. Then, at 5:45 p.m. on February 13th (i.e., after trading closed that day), Fortress’s board received notice of a February 14th meeting regarding the acquisition. On February 14th, Fortress’s board of directors received an email at 11:02 am that included draft resolutions approving the transaction. The remaining Defendants began purchasing Fortress CFDs and or making spread bets in the hours following this email.
- The confidential information about the Fortress acquisition was closely held, and both Fortress and SoftBank took all reasonable steps to maintain the confidentiality of that information. Moreover, the pool of potential tippers in this case is limited. It includes Board members, officers and certain “need to know” employees within Fortress and SoftBank, as well as the partners, investment bankers, attorneys, accountants and public relations firms engaged by those two entities. For Fortress, the pool includes certain employees of:
- Morgan Stanley (American investment bank);
- Davis Polk & Wardwell LLP (American law firm);
- Legance (Italian law firm);
- Maples and Calder (Cayman Islands law firm);
- Paul, Weiss, Rifkind, Wharton & Garrison LLP (American law firm);
- Evercore Group, LLC (American investment bank);
- Debevoise & Plimpton LLP (American law firm);
- Gasthalter & Co. (American public relations firm);
- Ernst & Young LLP (American accounting firm);
- Skadden Arps Slate Meagher & Flom LLP (American law firm); and
- Willkie Farr & Gallagher (American law firm).
For SoftBank, the pool includes certain employees of:
- J. P. Morgan Securities LLC (American investment bank);
F.A.B. Partners (British capital firm; originally partnered with SoftBank in Fortress acquisition, but withdrew before the deal was finalized);
- Kirkland & Ellis LLP (American law firm);
- KPMG, LLP (American accountant firm);
- Linklaters LLP (British law firm);
- Mizuho Securities (Japanese investment bank);
- Sard Verbinnen & Co. (American public relations firm)
- Morrison & Foerster LLP (American law firm); and
- Weil, Gotshal & Manges LLP (American law firm).
- Upon information and belief, tipper(s) from this pool provided this highly confidential information to Defendants in breach of a fiduciary duty to the companies involved, or another individual misappropriated the information from an individual in the pool in violation of a fiduciary duty to an insider. Defendants were thus tipped material, nonpublic information about SoftBank’s impending acquisition of Fortress in advance of their trading in Fortress CFDs and spread bets. Upon information and belief, Defendants made their purchases of Fortress stock based on this material, nonpublic information.
- This is not the first or last time that Defendants have benefited from such perfect timing. As set out below, overlapping groups of Defendants, trading in parallel, have engaged in repeated, highly suspicious patterns of buying securities shortly prior to a major corporate announcement and then selling shortly thereafter for an enormous profit.
NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT
- The Commission brings this action pursuant to the authority conferred upon it by Section 21(d) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78u(d). The Commission seeks permanent injunctions against the Defendants, enjoining them from engaging in the transactions, acts, practices, and courses of business alleged in this First Amended Complaint, disgorgement of all ill-gotten gains from the unlawful insider trading activity set forth in this First Amended Complaint, together with prejudgment interest, and civil penalties pursuant to Section 21A of the Exchange Act, 15 U.S.C. § 78u-1. The Commission seeks any other relief the Court may deem appropriate pursuant to Section 21(d)(5) of the Exchange Act, 15 U.S.C. § 78u(d)(5).
JURISDICTION AND VENUE
- This Court has subject matter jurisdiction pursuant to Sections 21(d), 21(e), 21A and 27 of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. §§ 78u(e), 78u-1, and 78aa]. The Defendants have directly or indirectly made use of the means or instrumentalities of interstate commerce, or of the mails, or the facilities of a national securities exchange in connection with the acts, practices, transactions, and courses of business alleged in this Complaint.
- Venue in this District is proper pursuant to Section 27 of the Exchange Act [15 U.S.C. § 78aa]. Certain of the transactions, acts, practices, and courses of business constituting the violations alleged herein occurred within the District of New Jersey and elsewhere, and were affected, directly or indirectly, by making use of the means or instruments or instrumentalities of transportation or communication in interstate commerce, or of the mails, or the facilities of a national securities exchange. During the relevant period, securities transactions related to this matter were executed on servers located in New Jersey, including those operated by NYSE in Mahwah, New Jersey.
- Venue also lies in this Court pursuant to 28 U.S.C. § 1391(c)(3) because the Defendants do not reside in the United States.
- Alda is an entity or d/b/a located in Belize City, Belize. Upon information and belief, Alda is beneficially owned and controlled by Qadri, a Danish citizen who currently resides in Dubai, UAE.
- Alda purchased and sold Fortress securities between February 14 and 15, 2017, from which it made approximately $281,000 in gross profit.
- Upon information and belief, Qadri caused Alda to make these trades on the basis of a tip of material nonpublic information.
- Creative Empire is an entity incorporated in the Republic of Seychelles and also has a location in Hong Kong. Creative Empire is beneficially owned and controlled by Ettedgui, a French citizen, age 34, who is believed to currently reside in Paris, France.
- Creative Empire purchased and sold Fortress securities between February 14 and 15, 2017, from which it made approximately $1,443,000 in gross profit.
- Upon information and belief, Ettedgui caused Creative Empire to make these trades on the basis of a tip of material nonpublic information….La suite cliquez ⇒ Doc