Front running is a type of insider trading that happens when an investor or other individual executes a trade with knowledge of an imminent securities transaction that will have a substantial effect on the price of the stock. For example, an employee of an investment firm may know that a transaction for a client will affect the value of a security in some way. If the employee believes that the transaction will raise the price of the stock, the employee may purchase some of the stock for his or her own account first. Then, when the price of the stock goes up, the employee sells for a profit. Conversely, the employee may think the transaction will decrease the price of the shares and sell the stock short before carrying out the order.
Front running distorts markets and betrays the public trust. If your employer, or an employee of your employer, is engaged in front running, it could have significant negative consequences for the firm and all of its employees. The Securities and Exchange Commission takes allegations of front running seriously, but it needs the public’s help in exposing this type of misconduct. That’s where the whistleblower program comes in.
Newman & Shapiro wants to help employees recognize and take action against front running. Doing so can make you eligible for a substantial whistleblower reward, and we can work with you to negotiate a fair amount. Contact us today if you have evidence that this form of fraud is happening in your company.
A Case Study
In 2013, the SEC announced fraud charges against Daniel Bergin, a senior equity trader at Cushing MLP Asset Management. Bergin secretly executed numerous trades through his wife’s accounts just before he executed much larger orders for the same securities on behalf of his firm’s clients. He failed to disclose his wife’s accounts to the firm, failed to acquire pre-clearance of his trades in those accounts, and then attempted to hide his wife’s accounts from SEC examiners. Bergin pocketed upwards of $520,000 through this scheme.
Bergin’s case had all the classic earmarks of front running fraud. He:
- Took market action before a non-public, pending transaction was made;
- Put his own trades, and therefore his own interests, before those of his clients;
- Attempted to hide his personal transactions through another individual’s accounts;
- Failed to disclose those accounts to his firm;
- Failed to have his personal transactions cleared; and
- Attempted to mislead the SEC.
Ultimately, Bergin was sentenced to 30 months in prison and was ordered to pay total monetary sanctions of over $3.5 million.