Two Indian-origin entrepreneurs have been charged by a top US regulator with insider trading in connection with the 2013 proposed acquisition of American company Cooper Tire and Rubber by India's Apollo Tyres.
Amit Kanodia of Massachusetts, a 47-year-old entrepreneur and private equity investor, and Iftikar Ahmed, of Connecticut, a general partner at a venture capital firm have been charged with fraud by the Securities and Exchange Commission (SEC) in a complaint filed in US district court in Connecticut.
The SEC is seeking to have Kanodia and Ahmed return their allegedly ill-gotten gains with interest and pay civil monetary penalties.
The US Attorney's Office for Massachusetts today announced parallel criminal charges against Kanodia and Ahmed.
Ahmed, 43, is a graduate of the Indian Institute of Technology in New Delhi and Harvard Business School, while Kanodia received degrees from the University of Massachusetts.
While the acquisition of Cooper by Apllo was never completed, the SEC complaint said that Cooper Tire's stock price jumped 41 per cent when the acquisition was announced in June 2013.
The SEC alleges that Kanodia tipped Ahmed and another friend prior to the acquisition announcement after learning of the deal from his wife, who was Apollo's general counsel at the time, more than two months before the merger was announced.
Kanodia shared the highly confidential information with Ahmed who began buying significant amounts of Cooper Tire stock and options.
Once news of the deal was public, Ahmed immediately liquidated his Cooper Tire holdings, reaping more than 1.1 million dollars of ill-gotten profits, according to the complaint.
Ahmed later paid Kanodia a kickback by transferring USD 220,000 to Lincoln Charitable Foundation, a supposed charity that Kanodia controlled and used to mask kickbacks.
A second close friend of Kanodia, identified in the complaint as 'Tippee 1', also profited by trading on the confidential information provided by Kanodia and paid a portion of his illicit gains to Kanodia using the same charity, the SEC's complaint alleges.
SEC Enforcement Division's Market Abuse Unit Co-Deputy Chief Joseph Sansone said that Kanodia gave inside information to two close friends who then paid a portion of their insider trading profits to a supposed charity that Kanodia controlled.
"Despite Kanodia's attempts at concealment, the SEC staff was able to uncover and unravel the scheme," Sansone said.
The SEC's complaint charges Kanodia and Ahmed with violating federal anti-fraud laws and a related SEC rule.
The SEC named Rakitfi Holdings LLC, a company owned by Ahmed, and Lincoln Charitable Foundation as relief defendants.
Apollo had agreed to buy Cooper Tire and Rubber for about USD 2.5 billion in 2013. The merger was abandoned in December that year.
