On March 5, Reza Saleh pleaded guilty to one count of insider trading. On March 7, a judge issued a civil disgorgement order against him. The government may not have won either victory without the efforts of Securities and Exchange Commission enforcement lawyer Kathleen Galloway of Fort Worth.
Galloway, who filed and litigated the civil case against Saleh, was the first government lawyer to identify the stock trading that ultimately led to the criminal conviction and the civil disgorgement order.
On Sept. 21, 2009, Dell Inc. announced a tender offer for Perot Systems Corp. — the deal upon which Saleh executed stock trades that would become the subject of the litigation. The SEC reviewed large stock futures’ trades, retrieved the necessary data from the Chicago Board Options Exchange, and filed its insider-trading civil complaint against Saleh on Sept. 23, 2009, Galloway says. [See the complaint.]
In the civil complaint in The Securities and Exchange Commission v. Reza Saleh, et al , the SEC alleged that Saleh was at the time an employee of Perot Investments, which was controlled by Ross Perot Sr., then the chairman emeritus of Perot Systems. The complaint alleged Saleh had learned nonpublic information prior to the public disclosure of Dell’s offer and engaged in insider trading with that information — purchasing options to buy Perot Systems stock before the deal was announced — violating the Exchange Act.
After filing the civil complaint, Galloway worked with federal prosecutors in the Eastern District of Texas, who pursued a criminal charge there against Saleh in November 2010, she says.
In January 2011, Saleh filed his consent to civil charges. Without admitting or denying any allegations, he agreed to disgorge his profits.
On March 5, Saleh entered a guilty plea to one count of insider trading. On the same day, U.S. District Judge Richard A. Schell in Sherman sentenced him to eight months in a federal prison.
On March 7, U.S. District Judge Barbara M.G. Lynn issued a final judgment in the SEC civil case. The judgment held Saleh liable for disgorging $8.6 million in profits gained from insider trading. It also held a relief defendant liable for an additional $2.73 million in disgorged profits. [See the judgment.]
“It always is exciting for us when we are able to get the requisite civil liability,” says Galloway.
Terence Hart and Patrick Craine, partners in Bracewell & Giuliani in Dallas, represent Saleh in both the civil and criminal case. They decline comment.
In 2009 when the SEC filed the civil complaint, The Wall Street Journal quoted a Perot family statement. In it, the family noted Saleh’s role helping rescue employees of the then-Perot-controlled Electronic Data Systems Inc. from an Iranian jail during the 1979 hostage crisis. Saleh’s role, the statement said, was “nothing short of miraculous.”
Galloway says the litigation provides “a great example of how these government entities can work together.” Having worked in the private sector before coming to the SEC in 2007, Galloway says, “It’s a privilege to work with people who are so dedicated and to the idea of doing something good for the public.”
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