SEC alleges Internet insider trading ring

Maria Trombly   Today’s Top Stories    or  Other Computerworld Stories  

March 15, 2000 (Computerworld) -- A part-time word processor at Goldman Sachs & Co. Inc. and Credit Suisse First Boston Corp. was charged yesterday with running an insider trading ring that allegedly netted the clerk and 18 other people more than $8 million in profits by trading on 23 public stocks.
The other defendants, including another CS First Boston employee, were also charged by the Securities and Exchange Commission and the Manhattan U.S. Attorney's office.
This was the first Internet-based insider trading ring cracked by federal prosecutors, according to the SEC, and it was a coordinated effort between that agency, the U.S. Attorney, the FBI and the self-regulatory organizations that form the Intermarket Surveillance Group.
The defendants allegedly made more than $8 million in illegal profits over the past three years, trading in such companies as Wang Laboratories, Regal Cinemas Inc., and Fingerhut Cos. — each the target of a merger or acquisition deal on which Goldman Sachs or CS First Boston worked.
The scheme first began in mid-1997, the SEC alleged, when John Freeman, 34, was working as a temp at Goldman Sachs. It was then that Freeman met insurance agent James Cooper, 41, and laser printing company executive Benton Erskine, 39, in an Internet chat room.
The three then formed a plan in which Freeman would pass on any stock tips he discovered during the course of his work at Goldman Sachs and, later, at Credit Suisse First Boston. The SEC said he learned about some deals as part of his normal duties, which involved word processing, formatting and graphics work.
Other information came from helping co-workers on their assignments, looking through the brokerages' internal computer systems, and by looking through documents he found at printers and copiers.
In addition, Freeman paid off another Credit Suisse First Boston temporary employee more than $5,000 over the past year.
The ring grew to include a total of 19 people, including two employees in the Bowling Green, Ky., office of Morgan Keegan & Company Inc. and two principals of G2 Investments Inc., a broker-dealer headquartered in Nashville.
According to a Credit Suisse First Boston spokesperson, the New York-based brokerage is cooperating fully with the authorities and is contacting its clients to keep them fully informed about the case.
Information about what steps the company would take to prevent similar problems in the future wasn't immediately available.

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