Hedge Fund Manager Sentenced for Insider Trading, Reports U.S. Attorney

Offshore Funds

Published in Lipper HedgeWorld.com, November 2006 Edition

(From PR Newswire US, provided by LexisNexis) 

BOSTON, Nov. 29 /PRNewswire/ -- A hedge fund manager was sentenced yesterday in federal court on insider trading charges that arose out of his trading Citizens Bank common stock and options based on a tip from a Citizens employee about the bank's then-impending merger with Cleveland-based Charter One Financial.

United States Attorney Michael J. Sullivan and Sharon E. Ormsby, Acting Special Agent in Charge of the Federal Bureau of Investigation in New England, announced today MICHAEL K.C. TOM, age 37, of Waltham, Massachusetts, was sentenced by U.S. District Judge Reginald C. Lindsay to 3 years of probation, the first 6 months of which are to be served in a community confinement facility. On February 15, 2006, TOM pleaded guilty to an Information charging him with five counts of insider trading.

At the earlier plea hearing, the prosecutor told the Court that, had the case proceeded to trial, the evidence would have shown that TOM managed and partly owned a hedge fund based in Burlington, Massachusetts called Global Time Capital Growth Fund. The fund invested principally in equities, particularly in the banking industry. TOM had started the fund in December 2003 and made the fund's investment decisions. TOM previously had served as a senior analyst at the Boston offices of Citizens Financial Group.

On April 28, 2004, TOM received a phone call from Shengnan Wang, a Citizens portfolio analyst whom TOM helped to hire. Wang told TOM that certain of her colleagues were performing due diligence of a Cleveland bank that Citizens sought to acquire. This information was highly confidential, as its public release, among other things, would have tended to drive up the price of the acquisition target's stock, thereby making the acquisition more expensive. At the time Wang provided the confidential information, she and her husband Hai Liu were investors in TOM's hedge fund.

Armed with this inside information, and with his knowledge of the banking industry, TOM was able quickly to narrow the possible targets to the real target, Charter One Financial. Over the next few business days, TOM traded aggressively in Charter One securities, making fifty-two purchases of either common stock and call options contracts. He made these trades in his own name, as well as on behalf of GTC Growth Fund and his relatives.

On May 4, 2004, Citizens announced that it intended to acquire Charter One. On May 5, 2004, the first day of trading after the public announcement, TOM sold virtually all of his Charter One holdings, reaping a profit of approximately $750,000. Wang and Liu's gain from TOM's trading was approximately $9,000.

TOM is also facing action by the Securities and Exchange Commission.

Wang, age 29, and her husband, Liu, age 32, both of 19 Madonna Street, Natick, Massachusetts, were charged separately with insider trading. They were each sentenced on March 23, 2006, to one year of probation and ordered to perform 500 hours of community service.

The case was investigated by the Federal Bureau of Investigation. It was prosecuted by Assistant U.S. Attorney Jonathan Mitchell in Sullivan's Economic Crimes Unit and Special Assistant U.S. Attorney Brad Ali.

CONTACT: Samantha Martin of the U.S. Attorney's Office, +1-617-748-3139

SOURCE U.S. Attorney

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