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Vindication for Izzy Englander

Insider Trading Charges Dismissed

When a U.S. federal judge recently dismissed the SEC’s insider trading charges against a former portfolio manager at Millennium Capital, it not only vindicated founder Izzy Englander as well as the trader himself, Renato Negrin. It now allows the narrative at Millennium to change as well — from a firm that has a history of brushes with regulators, to a firm that settled civil charges related to an incident and put it behind it.

That’s a big difference.

In case you missed it, in May 2009 the SEC charged former Millennium portfolio manager Renato Negrin and Jon-Paul Rorech, a salesman at Deutsche Bank Securities, with insider trading in credit default swaps of VNU N.V. At the time it was a big deal because it was the SEC’s first insider trading case involving those big bad derivatives.

The SEC alleged that Rorech told Negrin during two unrecorded cell phone calls — critical to the SEC’s case — that Deutsche Bank would recommend to VNU’s financial sponsors that VNU issue the holding company bonds, and that at least one of Rorech’s customers already had placed an order for $100 million of these bonds.

Negrin, who spent six years with Millennium as the head of a credit trading group of about seven individuals, bought two VNU CDSs on behalf of Millennium on July 17 and July 18, 2006. After the July 24, 2006, announcement that VNU’s bond offering would be amended to include bonds issued by the holding company, the price of VNU CDSs surged. Negrin subsequently sold the VNU CDSs for a profit to Millennium of $1.2 million.

Negrin denied the charges and did not settle. Good move.

Keep in mind that Millennium and Englander were not named in the complaint. However, it was nevertheless an embarrassment for the firm.

Well, no longer. Last week, a civil judge dismissed the SEC’s complaint after conducting a non-jury trial from April 7 to April 28. “Despite the SEC’s allegations of the information passed by Mr. Rorech to Mr. Negrin during the two cellular phone calls, there is no evidence of what was actually said on those calls and neither Mr. Rorech nor Mr. Negrin could recall the substance of the calls,” the Judge wrote in his 122-page decision. “While the SEC attempts to attribute nefarious content to those calls through circumstantial evidence, there is, in fact, no evidence to support this inference and ample evidence that undercuts the SEC’s theory that the defendants engaged in insider trading.”

The Judge elaborated that the SEC produced no evidence that Deutsche Bank had actually decided to recommend that the sponsors issue a holding company tranche at the time of Rorech’s cell calls with Negrin, and there is no evidence this decision was conveyed to Rorech before the phone calls.

The Judge also concluded that the SEC has failed to prove that either piece of alleged information was material.

Also, the judge said the evidence confirms that the information that Rorech could have shared with Negrin was not confidential and that Rorech did not breach any duty to Deutsche Bank.

Millennium declined to comment on the Court’s decision, the case in general or the ramifications for the firm.

However, while it is a setback for the SEC, it was more than a single win for Millennium.

Remember, beginning in 2003 Englander was dogged by the mutual fund late trading scandal. Steven B. Markovitz, a former executive and senior trader with Millennium, had pleaded guilty to criminal charges for engaging in “late” trading of mutual fund shares on behalf of Millennium.

Then, in December 2005, Millennium, Englander, and three others agreed to pay more than $180 million to settle with then-New York attorney general Eliot Spitzer and the SEC. The regulator alleged that from 1999 to 2003, Millennium and the individuals generated tens of millions of dollars in profits for Millennium by engaging in deceptive market timing. As part of the settlement, Englander paid a $30 million penalty. Millennium also agreed to a series of compliance and corporate governance changes.

After the 2005 settlement, Millennium had boasted that it instituted rigorous procedures and rules designed to avoid the sort of event that Negrin was charged with.

Those changes were called into question when Negrin was charged.

Now that he was completely cleared, so is, in effect, Millennium, even though the firm was not charged or on trial.

It allows Englander to dispute any notion that there has been a pattern of questionable practices at the firm. There was one incident, there was a settlement and Millennium and Englander moved on.

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