It was bad enough when credit default swaps were being likened to time bombs within the financial system, but now they're the focus of an insider trading charge.
The SEC Tuesday filed its first insider trading case charges involving the use of credit default swaps when the agency slapped Renato Negrin, a former portfolio manager at hedge fund investment adviser Millennium Partners LP, and Jon-Paul Rorech, a salesman at Deutsche Bank Securities Inc., with insider trading using credit-default swaps on VNU NV. (
See SEC document here.)
According to the complaint,
"Rorech illegally tipped Negrin about a contemplated change to the bond structure, and Negrin then purchased CDS on VNU for a Millennium hedge fund. When news of the restructured bond offering became public in late July 2006, the price of VNU CDS substantially increased, and Negrin closed Millennium's VNU CDS position at a profit of approximately $1.2 million." With default swaps already being criticized for
complicating efforts to work out bank, auto and other restructurings outside of bankruptcy, an insider trading charge its the last thing the derivative everyone loves to hate needs.
Update: Deutsche Bank's Jon Paul Rorech has retained Rich Strassberg of Goodwin Procter as defense counsel. Mr. Strassberg released the following statement: "The SEC's case has no merit. Mr. Rorech did not commit insider trading or any other violation of the securities laws. Mr. Rorech intends vigorously to defend his position and expects to be completely vindicated in this matter." -
George WhiteSee SEC filingSee Dealscape post on CDS/restructuring
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