A former Oracle vice president has settled insider trading charges that he used information gained through his wife — an assistant to Oracle’s swashbuckling, acquisition-hungry CEO Larry Ellison and other company leaders — to buy and sell stock in companies that Oracle was planning to purchase.
The Securities and Exchange Commission (SEC) filed its civil suit against Christopher Balkenhol on Monday. The commission alleged that Balkenhol used information from his wife to buy shares of two companies — Retek and Siebel Systems — before Oracle made public its plans to buy those companies.
Balkenhol agreed to pay approximately US$198,000 to settle the case. The sum includes more than $97,000 in profits realized due to the stock purchases and sales. Belkenhol agreed to pay an additional $100,000 in fines and interest, though he did not admit to any wrongdoing as part of the settlement agreement, according to the SEC.
A High Priority
“Combating trading ahead of mergers and acquisitions is among the commission’s highest priorities,” said Linda Chatman Thomsen, the SEC’s director of enforcement. “This case adds to a growing list of recent enforcement actions against corporate employees and securities industry professionals for trading on information about upcoming corporate transactions that they knew to be confidential.”
The commission will continue to pursue such cases, she added, because “illegal insider trading undermines the level playing field that is the hallmark of our capital markets.”
Oracle did not respond to a request for comment on the case. Oracle shares were not among those alleged to have been traded on insider information. The SEC did not disclose how it first became aware of the suspicious trades, but said it had cooperation from the National Association of Securities Dealers (NASD) during its investigation.
Balkenhol first engaged in insider trading around March of 2005, when he began buying shares of Retek, eventually purchasing $85,000 worth of the Minneapolis-based software firm’s shares, according to the SEC. The first purchases came just a day after Oracle executives first discussed making an offer for Retek. A week later, Oracle went public with a tender offer for Retek that caused that firm’s shares to surge. Balkenhol sold the shares on the jump, making an estimated $15,000 in alleged unlawful profits.
The same pattern emerged around Siebel Systems, the commission alleged, with Balkenhol buying more than $270,000 worth of Siebel’s stock starting just days after Oracle’s copresidents — to whom his wife was also an assistant — held a secret meeting with Siebel’s CEO to discuss a merger.
Balkenhol made three more Siebel purchases over the next three months, each one coming shortly after the two companies held additional private talks. He ended up with some 50,000 shares of Siebel, worth around $450,000, stock that he unloaded shortly after Oracle announced on Sept. 12, 2005, that it would buy Siebel for around $5.8 billion.
A Confidence Game
Though notoriously difficult to prove, insider trading allegations do seem to be on the increase recently, with some leading to high-profile settlements and convictions. Last month, a jury found former Qwest CEO Joseph Nacchio guilty on 19 counts of insider trading stemming from stock sales made when Qwest stock was being propped out with unrealistically optimistic outlooks.
Many of the recent cases involve so-called pillow talk as well, with husband and wife teams allegedly sharing information with each other to enable stock profits. Last week, the New York office of the FBI said it arrested a Morgan Stanley stock analyst and a hedge fund employee — who were also husband wife — and charged them with making $600,000 in profits from illegal insider trades. Just a day before, another Morgan Stanley employee and her husband pleaded guilty to charges that they operated their own insider-trading scheme.
In addition, both the SEC and the office of the attorney general for New York state are reportedly investigating possible insider trading of shares of Dow Jones, which saw its stock rise 50 percent in a single trading session after Rupert Murdoch made a surprise bid to buy the Wall Street Journal publisher.
The Playing Field
Regulators need to aggressively pursue and penalize illegal insider trading in order to keep the stock markets healthy, Kent Womack, a professor at the Tuck School of Business at Dartmouth College, told the E-Commerce Times. By using both civil and criminal avenues, regulators and law enforcement can together create a strong deterrent to attempting to make gains from insider information, he added.
“The public stock markets only work if there is at least a perception of a level playing field,” he said. “If the deck appears stacked, people will put their money elsewhere, and that would obviously be a disaster for American business.”
Mergers in particular pose a significant risk for insider dealings because the buyer almost always pays a premium over the market price of a company’s stock, and major deals in particular are difficult to arrange without involving numerous parties in the talks.
“At any given time during its buying spree, Oracle has had several deals in various stages of completion,” Gartner analyst Martin Reynolds told the E-Commerce Times. Each deal would have required discussions about strategy, finances, integration and other factors before being undertaken. “Given the rate at which Oracle was buying companies, it’s not surprising that there was a lot of inside information floating around.”