The U.S. Securities and Exchange Commission sued a former Deloitte Tax LLP partner and his wife for passing confidential information on mergers and acquisitions to family members, who allegedly reaped millions of dollars trading on the tips.
Arnold McClellan, 51, and his wife Annabel McClellan, told family members of at least seven confidential buyouts between 2006 and 2008 planned by Deloitte’s clients, the SEC said in a lawsuit filed in California federal court today. Their relatives made about $3 million in profits, the lawsuit said.
McClellan, who headed one of Deloitte’s regional mergers and acquisitions teams, passed information to his brother-in-law about 2007 buyouts of companies including Kronos Inc. and aQuantive Inc. and the 2008 purchase of Getty Images Inc., the SEC said. The brother-in-law, James Sanders, co-owner of London derivatives broker Blue Index Ltd., was charged along with two colleagues by the U.K. Financial Services Authority last week for trading on the tips.
“The McClellans might have thought that they could conceal their illegal scheme by having close relatives make illegal trades offshore,” SEC Enforcement Director Robert Khuzami said in a statement. “They were wrong.”
McClellan Denies Charges
Arnold McClellan “denies the claims and will vigorously contest them,” Elliot Peters, his attorney at Keker & Van Nest, said in a statement. “He did not trade on insider information, and there will be no evidence that he passed along any confidential information to anyone.”
Nanci Clarence, Annabel McClellan’s lawyer, said her client denies the allegations. McClellan didn’t possess, pass or trade on inside information, Clarence said in an interview.
Sanders denied the FSA’s allegations, Kevin Robinson, his lawyer at Irwin Mitchell LLP, said Nov. 25.
Sanders consistently placed trades in companies that were acquisition targets of McClellan’s clients shortly after McClellan learned of important events that could impact the deals, the SEC said. By 2007, Sanders was taking “large positions” based on the tips and shared the information with colleagues and clients of his firm, according to the lawsuit.
In January 2007, McClellan signed a confidentiality agreement with a client seeking to purchase Kronos, the SEC said. Within the next two days, Sanders began trading derivatives related to the company’s shares and then increased his position after McClellan stayed overnight at his London home a week later, according to the lawsuit.
$3 Million in Gains
In May 2007, Sanders bought derivative investments in aQuantive a day after McClellan started working on Microsoft Corp.’s acquisition of the company, the SEC said. Later that year, Sanders placed his first trade in Getty Images the day Annabel McClellan arrived to visit him in London, according to the lawsuit. Sanders made more than $3 million from trading in advance of McClellan’s clients’ deals, the SEC said.
Annabel McClellan tipped Sanders as part of an agreement to share proceeds from the trades, the complaint said. The SEC is seeking disgorgement of ill-gotten profits and unspecified fines.
“We are shocked and saddened by these allegations against our former tax partner and members of his family. If the allegations prove to be true, they would represent serious violations of our strict and regularly communicated confidentiality policies,” Deloitte spokesman Jonathan Gandal said in an e-mailed statement.
Gandal said that McClellan was removed from work with clients in August 2009 when the focus of the investigation became apparent, and he left the firm in June.
“The SEC does not allege any wrongdoing by Deloitte in this unfortunate matter,” Gandal said.
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