NEW YORK: Two Indian-origin entrepreneurs have been charged by the US authorities with insider trading for making over a million dollars in illegal profits through the proposed acquisition of Cooper Tire and Rubber by India’s Apollo Tyres.
Amit Kanodia of Massachusetts, a 47-year-old entrepreneur and private equity investor, and his long-time friend Iftikar Ahmed of Connecticut, a general partner at a venture capital firm have been charged with fraud by the Securities and Exchange Commission (SEC) in a complaint filed in US district court in Connecticut.
The SEC is seeking to have Mr Kanodia and Mr Ahmed return their allegedly ill-gotten gains with interest and pay civil monetary penalties.
The US Attorney’s Office for Massachusetts today announced parallel criminal charges against Kanodia and Ahmed.
Mr Ahmed, 43, is a graduate of the Indian Institute of Technology in New Delhi and Harvard Business School, while Kanodia received degrees from the University of Massachusetts.
While the acquisition of American company Cooper by Apollo was never completed, the SEC complaint said that Cooper Tire’s stock price jumped 41 per cent when the acquisition was announced in June 2013.
The SEC alleges that Mr Kanodia tipped Mr Ahmed and another friend prior to the acquisition announcement after learning of the deal from his wife, who was Apollo’s general counsel at the time, more than two months before the merger was announced.
“Trading on insider information is fraud, plain and simple,” US Attorney Carmen Ortiz in Boston said.
The SEC said, Mr Kanodia shared the highly confidential information with Ahmed who began buying significant amounts of Cooper Tire stock and options.
Once news of the deal was public, Mr Ahmed immediately liquidated his Cooper Tire holdings, reaping more than 1.1 million dollars of ill-gotten profits, according to the complaint.
The SEC said, Mr Ahmed later paid Mr Kanodia a kickback by transferring $ 220,000 to Lincoln Charitable Foundation, a supposed charity that Mr Kanodia controlled and used to mask kickbacks.
A second close friend of Mr Kanodia, identified in the complaint as ‘Tippee 1’, also profited by trading on the confidential information provided by him and paid a portion of his illicit gains to Mr Kanodia using the same charity, the SEC’s complaint alleges.
SEC Enforcement Division’s Market Abuse Unit Co-Deputy Chief Joseph Sansone said that Mr Kanodia gave inside information to two close friends who then paid a portion of their insider trading profits to a supposed charity that Mr Kanodia controlled.
“Despite Mr Kanodia’s attempts at concealment, the SEC staff was able to uncover and unravel the scheme,” Sansone said.
The SEC’s complaint charges Mr Kanodia and Mr Ahmed with violating federal anti-fraud laws and a related SEC rule.
The SEC named Rakitfi Holdings LLC, a company owned by Mr Ahmed, and Lincoln Charitable Foundation as relief defendants.
Apollo had agreed to buy Cooper Tire and Rubber for about $2.5 billion in 2013. The merger was abandoned in December that year.