US securities market regulator sues M&A lawyers over insider trading allegations

The United States Securities and Exchange Commission (SEC) has sued two mergers and acquisitions (M&A) lawyers and 19 others for allegedly running a multi-year insider trading scheme using confidential deal information obtained from global law firms.

The complaint was filed before the United States District Court for the District of Massachusetts.

The SEC has alleged that lawyers Nicolo Nourafchan and Robert Yadgarov orchestrated the scheme from around 2018 to 2024, generating millions of dollars in illegal profits by trading in securities of US-listed companies.

According to the SEC, the tips originated from lawyers, including Nourafchan, who worked on M&A transactions at global law firms.

Nourafchan allegedly misappropriated material non-public information about nearly a dozen impending corporate transactions - including mergers, acquisitions and a tender offer - from his law firm employers.

The SEC has alleged that the information was then passed to a wider network of traders, including friends, relatives, co-workers and business associates. Several of them allegedly agreed to pay kickbacks from their trading profits in exchange for the tips.

Another corporate lawyer, Gabriel Gershowitz, has also been named as a defendant. The complaint states that Gershowitz attended college with Nourafchan and Yadgarov and was recruited into the alleged scheme in late 2018. By April 2019, he allegedly began passing confidential information obtained from his own law firm employers to Nourafchan and Yadgarov.

The law firms have not been named in the SEC complaint. They are referred to as Law Firm A, Law Firm B, Law Firm C and Law Firm D.

Public deal announcements indicate that Law Firm A appears to be Latham & Watkins, which advised Momenta in its acquisition by Johnson & Johnson, while Law Firm B appears to be Goodwin Procter, which advised SailPoint and iRobot.

The complaint says that Nourafchan accessed confidential documents even in transactions on which he was not staffed. In some cases, he allegedly searched law firm document systems using keywords and viewed files in preview or read-only mode to reduce the electronic trail of access.

The SEC has said that the defendants used coded language to hide the alleged scheme. Tips were allegedly referred to as “flights”, passing confidential information was called “learning”, and deal announcement dates were described as a “rabbi” having “surgery”.

The complaint also alleges that Nourafchan and another defendant, Gavryel Silverstein, used prepaid phones to avoid detection.

The SEC has cited several transactions to explain how the alleged scheme worked. These include Johnson & Johnson’s acquisition of Momenta Pharmaceuticals, Thoma Bravo’s acquisition of SailPoint Technologies and Amazon’s proposed acquisition of iRobot.

In the Momenta transaction, the SEC alleged that Nourafchan accessed confidential law firm files related to Johnson & Johnson’s $6.5 billion acquisition of Momenta, even though he was not assigned to the deal.

After the deal was announced in August 2020, several defendants allegedly sold their positions for profits.

In the SailPoint transaction, the complaint says that Nourafchan accessed documents relating to Thoma Bravo’s $6.9 billion acquisition of SailPoint while working at a law firm that represented SailPoint. The SEC has alleged that several defendants traded before the public announcement and made profits.

The iRobot transaction forms a major part of the complaint. The SEC has alleged that Nourafchan accessed documents relating to Amazon’s proposed acquisition of iRobot while working at a law firm that represented iRobot. Several defendants allegedly bought iRobot shares and call options before the deal was announced in August 2022.

The SEC has alleged that the conduct violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. It has also alleged violations of tender offer-related provisions against some defendants. The regulator has sought permanent injunctions, disgorgement of alleged illegal gains with interest, civil monetary penalties and other relief.

The SEC is represented by Senior Trial Counsel Rua Kelly.

[Read Court Filing]