The Securities and Exchange Commission announced a settlement Monday with a Brooklyn man who entered into a cooperation agreement to help the agency mount evidence in an insider trading scheme in which illegal tips were passed via napkins or Post-It notes at Grand Central Terminal that the tipster would then consume to destroy the evidence.
Last year the SEC charged a law firm clerk and a stockbroker with insider trading in a scheme that used a mutual friend to pass material, nonpublic information from the law firm’s computer systems about clients’ pending corporate transactions. The SEC identified that middleman as Frank Tamayo in a subsequent complaint filed in federal court in New Jersey last September.
The SEC alleged that after receiving the tips from the law firm clerk, Tamayo typically met the stockbroker near the clock at the information booth at Grand Central and chewed up or ate Post-It notes or napkins after using them to show the stockbroker the ticker symbol of the company that would be acquired. The stockbroker then traded for himself, Tamayo, and other customers.
For his extensive cooperation in the SEC’s investigation, Tamayo will not face a monetary penalty from the SEC. In the proposed final judgment, which is subject to court approval, Tamayo would be ordered to disgorge more than $1 million of his ill-gotten gains from the scheme (but no undigested Post-It Notes and napkins). That payment would be deemed satisfied by the entry of orders of forfeiture or restitution in the parallel criminal case, in which he has pled guilty. Tamayo also would be permanently enjoined from future violations of federal antifraud laws and SEC antifraud rules.
“Tamayo benefited from his decision to cooperate promptly with the SEC, enter into our cooperation program, and provide significant information that assisted our investigation,” said Robert A. Cohen, co-deputy chief of the SEC Enforcement Division’s Market Abuse Unit, in a statement.
Under the terms of the agreement, Tamayo must continue to cooperate as a witness in the SEC’s ongoing case against the law firm clerk Steven Metro of Katonah, N.Y. and the stockbroker, Vladimir Eydelman of Colts Neck, N.J. The SEC seeks disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, and injunctions against them.
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