The U.S. Securities and Exchange Commission has dropped its insider trading investigation of Matthew Korenberg, a former Goldman Sachs & Co. managing director accused of tipping a Galleon Group employee about a corporate merger.
The decision followed a series of presentations to SEC lawyers by Korenberg’s defense team, led by John Hueston of Irell & Manella. Irell announced the end of the five-year probe in a press release on Wednesday.
Hueston said in an interview that the SEC had appeared on the brink of bringing claims against Korenberg about 18 months ago, before a series of meetings with the defense helped persuade the agency to back away. “By the end of that time, we could tell the SEC was becoming convinced there was no case here,” Hueston said. “I was happy they didn’t just file the case and ask the hard questions later.”
In early 2009 Goldman Sachs advised Advanced Medical Optics on its sale to Abbott Laboratories. Galleon, Raj Rajaratnam’s now-defunct hedge fund, bought AMO shares three days before the acquisition was publicly announced, and later sold the shares at a $2.8 million profit. As part of its sweeping investigation into Galleon’s conduct, the SEC began developing a theory that San Francisco-based Korenberg tipped off a friend who worked at Galleon, Paul Yook, about the AMO deal.
The Korenberg probe was first reported by The Wall Street Journal in April 2012, after it was disclosed to defense counsel in the criminal case against now-imprisoned former Goldman director Rajat Gupta.
By early 2013, Hueston told us, SEC lawyers had obtained the authorization they needed from the agency’s commissioners to bring a civil lawsuit against Korenberg. Hueston said he asked the agency for an opportunity to preemptively demonstrate why the case against his client was weak. The SEC agreed, Hueston said, but somewhat reluctantly.
“I think they were very skeptical at first. We encountered a lot of crossed arms,” Hueston said. “We thought it would be a long shot to get them to unwind after they had already gotten authorization.”
Unlike the U.S. Department of Justice, which has built an impressive record prosecuting insider trading defendants in recent years, the SEC can’t rely on wiretaps to build its cases. The agency lost a high-profile insider trading case against billionaire Mark Cuban in October 2013. Hedge fund manager Nelson Obus won a similar verdict last month. In the wake of those and other losses, some defense lawyers have said the SEC needs to rethink which cases to bring, especially given the reputational damage they can do to defendants.