SEC Files First-Ever Insider Trading Charges of CDS

The SEC on Tuesday brought its first-ever insider-trading case involving credit-default swaps against Millennium Partners portfolio manager Renato Negrin, and Deutsche Bank CDS salesman Jon Paul Rorech. The SEC alleges both players engaged in illegal activity in the CDS of VNU, a Dutch publishing company most noted for its Nielsen Media division, and made a $1.2 million profit.

From SEC: The SEC’s complaint alleges that Rorech learned information from Deutsche Bank investment bankers about a change to the proposed VNU bond offering that was expected to increase the price of the CDS on VNU bonds. Deutsche Bank was the lead underwriter for a proposed bond offering by VNU. According to the SEC’s complaint, Rorech illegally tipped Negrin about the 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.

“This is the first insider trading enforcement action involving credit default swaps,” said Scott W. Friestad, Deputy Director of the SEC’s Division of Enforcement. “As alleged in our complaint, Rorech and Negrin checked their integrity at the door and schemed to engage in insider trading of CDS to the detriment of investors and our markets.”

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