SEC CHARGES AJAZ RAHIM, PAKISTANI BANKER, WITH INSIDER TRADING
On May 11, the Commission charged Ajaz Rahim, a Pakistani banker who
was employed by Faysal Bank in Karachi, Pakistan with insider trading
based on material, non-public information he received from Hafiz
Naseem, an employee of Credit Suisse (USA) LLC in New York. In a Third
Amended Complaint in the insider trading case originally filed on
March 2, 2007, against certain Unknown Purchasers of TXU call options,
the Commission alleged that, on Feb. 5, 6, 7, 8 and 23, 2007, Naseem,
in breach of his duty to Credit Suisse and its client, telephoned
Rahim and conveyed to him non-public, material information concerning
the proposed but unannounced leveraged buyout of TXU Corp. by an
investor group led by Kohlberg Kravis Roberts & Co. and Texas Pacific
Group., and other information. According to the Third Amended
Complaint, Rahim, on Feb. 23, 2007, purchased 6,700 TXU call option
contracts with March 2007 expiration dates through UBS AG London, and
15,000 shares of TXU stock through Bank Julius Baer Co. Ltd. (Guernsey
Branch). According to the Commission, these purchases allowed him to
reap, following the public announcement of the buyout, trading profits
of approximately $5.1 million.
The Third Amended Complaint further alleges that Naseem made calls
from his office phone to Rahim's home and cell phones and alerted him
to pending business combinations and deals involving 9 other issuers:
Hydril Company, Trammell Crow Co., John Harland Co., Energy Partners
Ltd., Veritas DGC Inc., Jacuzzi Brands, Caremark Rx, Inc., and
Northwestern Corporation. The Third Amended Complaint alleges that, in
at least 25 instances, Rahim placed trades in the securities of these
issuers minutes after receiving a phone call from Naseem. According to
the Third Amended Complaint, Credit Suisse served as an investment
banker or financial advisor in all of the involved deals, and the
phone calls to Rahim were made close in advance of - and frequently
the day of or the day before -announcements of the proposed deals. The
Third Amended Complaint also alleges that Rahim purchased securities
in those companies in advance of public merger announcements through
accounts held at Merrill Lynch Pierce Fenner & Smith and/or Bank
Julius Baer Co. Ltd (Guernsey Branch), obtaining profits of
$2,425,000. Finally, according to the Third Amended Complaint, Naseem,
in order to insure he would obtain a personal, financial benefit from
his misappropriations, in May 2006 opened up a brokerage account in
Pakistan and granted trading authority over that account to Rahim, his
"tippee."
The Commission alleges that, as a result of these activities, Rahim
engaged in insider trading in violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The
Commission is seeking permanent injunctive relief, disgorgement of
ill-gotten gains with prejudgment interest thereon, and civil monetary
penalties. The Commission's original complaint against the Unknown
Purchasers alleged that between February 21 and February 23 - prior to
the public disclosure of TXU Corp.'s merger agreement - while in
possession of material, nonpublic information regarding the
acquisition offer, the Unknown Purchasers, using overseas accounts,
purchased over 8,020 call option contracts for TXU stock. The
unrealized illicit profits on these option contracts total
approximately $5.4 million. On March 2, 2007 the United States
District Court for the Northern District of Illinois in Chicago
entered a Temporary Restraining Order freezing assets of the Unknown
Purchasers. On March 28, 2007, the District Court approved an
extension of the asset freeze as to the Unknown Purchasers who
purchased TXU securities through Credit Suisse in Zurich and Francisco
Javier Garcia, then identified as the Unknown Purchaser who purchased
TXU securities through Fimat Banque Frankfurt Zweigniederlassung. The
Court also approved a 60-day extension of the asset freeze as to
Rahim, then identified as the Unknown Purchaser who traded through UBS
AG London. Garcia, believed to be a resident of Switzerland, purchased
at least 260 TXU call options in advance of the public announcement.
As a result of his insider trading, Garcia is in a position to reap
trading profits of at least $150,500, the Commission alleges.
As a result of an Amended Complaint filed by the Commission, on March
28, 2007, the United States District Court for the Northern District
of Illinois in Chicago entered a Temporary Restraining Order freezing
assets of Sunil and Seema Sehgal, a married couple residing in the
United Kingdom. The Amended Complaint added the Sehgals as defendants
in the March 2, 2007, case against certain Unknown Purchasers of TXU
call options, and alleged that the Sehgals made highly profitable and
suspicious purchases of 700 call option contracts for the common stock
of TXU Corp. through accounts at Charles Schwab & Co., Inc., and Clark
Dodge & Co, Inc., in January and February 2007. The Commission alleged
that, as a result of the increase in price of TXU stock following the
public announcement of the leveraged buyout, the illicit profits on
the Sehgals' option contracts total approximately $270,000. On April
12, 2007, the Court approved a 60-day extension of the asset freeze as
to the Sehgals. In its Third Amended Complaint, the Commission alleges
that, in addition to timely purchases of TXU securities, Seema Sehgal
also traded Hydril Company stock, and Sunil Sehgal traded Hydril
Company, John Harland Co., and Caremark Rx, Inc. securities in advance
of public merger announcements, realizing aggregate trading profits of
approximately $292,900 in addition to the TXU profits.
The Commission wishes to thank the New York Stock Exchange, the
Chicago Board Options Exchange, the Swiss Federal Banking Commission
and the Financial Services Authority of the United Kingdom for their
assistance in this matter. [SEC v. One or More Unknown Purchasers of
Call Options for the Common Stock of TXU Corp., Ajaz Rahim, Sunil
Sehgal, Seema Sehgal, Hafiz Naseem, and Francisco Javier Garcia, Civil
Action No. 07C1208 (N.D. Ill.)] (LR-20113
On May 11, the Commission charged Ajaz Rahim, a Pakistani banker who
was employed by Faysal Bank in Karachi, Pakistan with insider trading
based on material, non-public information he received from Hafiz
Naseem, an employee of Credit Suisse (USA) LLC in New York. In a Third
Amended Complaint in the insider trading case originally filed on
March 2, 2007, against certain Unknown Purchasers of TXU call options,
the Commission alleged that, on Feb. 5, 6, 7, 8 and 23, 2007, Naseem,
in breach of his duty to Credit Suisse and its client, telephoned
Rahim and conveyed to him non-public, material information concerning
the proposed but unannounced leveraged buyout of TXU Corp. by an
investor group led by Kohlberg Kravis Roberts & Co. and Texas Pacific
Group., and other information. According to the Third Amended
Complaint, Rahim, on Feb. 23, 2007, purchased 6,700 TXU call option
contracts with March 2007 expiration dates through UBS AG London, and
15,000 shares of TXU stock through Bank Julius Baer Co. Ltd. (Guernsey
Branch). According to the Commission, these purchases allowed him to
reap, following the public announcement of the buyout, trading profits
of approximately $5.1 million.
The Third Amended Complaint further alleges that Naseem made calls
from his office phone to Rahim's home and cell phones and alerted him
to pending business combinations and deals involving 9 other issuers:
Hydril Company, Trammell Crow Co., John Harland Co., Energy Partners
Ltd., Veritas DGC Inc., Jacuzzi Brands, Caremark Rx, Inc., and
Northwestern Corporation. The Third Amended Complaint alleges that, in
at least 25 instances, Rahim placed trades in the securities of these
issuers minutes after receiving a phone call from Naseem. According to
the Third Amended Complaint, Credit Suisse served as an investment
banker or financial advisor in all of the involved deals, and the
phone calls to Rahim were made close in advance of - and frequently
the day of or the day before -announcements of the proposed deals. The
Third Amended Complaint also alleges that Rahim purchased securities
in those companies in advance of public merger announcements through
accounts held at Merrill Lynch Pierce Fenner & Smith and/or Bank
Julius Baer Co. Ltd (Guernsey Branch), obtaining profits of
$2,425,000. Finally, according to the Third Amended Complaint, Naseem,
in order to insure he would obtain a personal, financial benefit from
his misappropriations, in May 2006 opened up a brokerage account in
Pakistan and granted trading authority over that account to Rahim, his
"tippee."
The Commission alleges that, as a result of these activities, Rahim
engaged in insider trading in violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The
Commission is seeking permanent injunctive relief, disgorgement of
ill-gotten gains with prejudgment interest thereon, and civil monetary
penalties. The Commission's original complaint against the Unknown
Purchasers alleged that between February 21 and February 23 - prior to
the public disclosure of TXU Corp.'s merger agreement - while in
possession of material, nonpublic information regarding the
acquisition offer, the Unknown Purchasers, using overseas accounts,
purchased over 8,020 call option contracts for TXU stock. The
unrealized illicit profits on these option contracts total
approximately $5.4 million. On March 2, 2007 the United States
District Court for the Northern District of Illinois in Chicago
entered a Temporary Restraining Order freezing assets of the Unknown
Purchasers. On March 28, 2007, the District Court approved an
extension of the asset freeze as to the Unknown Purchasers who
purchased TXU securities through Credit Suisse in Zurich and Francisco
Javier Garcia, then identified as the Unknown Purchaser who purchased
TXU securities through Fimat Banque Frankfurt Zweigniederlassung. The
Court also approved a 60-day extension of the asset freeze as to
Rahim, then identified as the Unknown Purchaser who traded through UBS
AG London. Garcia, believed to be a resident of Switzerland, purchased
at least 260 TXU call options in advance of the public announcement.
As a result of his insider trading, Garcia is in a position to reap
trading profits of at least $150,500, the Commission alleges.
As a result of an Amended Complaint filed by the Commission, on March
28, 2007, the United States District Court for the Northern District
of Illinois in Chicago entered a Temporary Restraining Order freezing
assets of Sunil and Seema Sehgal, a married couple residing in the
United Kingdom. The Amended Complaint added the Sehgals as defendants
in the March 2, 2007, case against certain Unknown Purchasers of TXU
call options, and alleged that the Sehgals made highly profitable and
suspicious purchases of 700 call option contracts for the common stock
of TXU Corp. through accounts at Charles Schwab & Co., Inc., and Clark
Dodge & Co, Inc., in January and February 2007. The Commission alleged
that, as a result of the increase in price of TXU stock following the
public announcement of the leveraged buyout, the illicit profits on
the Sehgals' option contracts total approximately $270,000. On April
12, 2007, the Court approved a 60-day extension of the asset freeze as
to the Sehgals. In its Third Amended Complaint, the Commission alleges
that, in addition to timely purchases of TXU securities, Seema Sehgal
also traded Hydril Company stock, and Sunil Sehgal traded Hydril
Company, John Harland Co., and Caremark Rx, Inc. securities in advance
of public merger announcements, realizing aggregate trading profits of
approximately $292,900 in addition to the TXU profits.
The Commission wishes to thank the New York Stock Exchange, the
Chicago Board Options Exchange, the Swiss Federal Banking Commission
and the Financial Services Authority of the United Kingdom for their
assistance in this matter. [SEC v. One or More Unknown Purchasers of
Call Options for the Common Stock of TXU Corp., Ajaz Rahim, Sunil
Sehgal, Seema Sehgal, Hafiz Naseem, and Francisco Javier Garcia, Civil
Action No. 07C1208 (N.D. Ill.)] (LR-20113
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N A D E E M M A L I K
CNBC PAKISTAN
BUREAU CHIEF
ISLAMABAD
0321-5117511
16th Floor,
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