* SEC in first non-prosecution pact with individual
* SEC structures penalties based on levels of cooperation
* Insider trading alleged in GSI Commerce
(Adds comments from lawyers, background on non-prosecution
agreements, details of alleged scheme)
By Jonathan Stempel and Sarah N. Lynch
WASHINGTON/NEW YORK, April 25 The U.S.
government on Friday filed criminal and civil charges accusing a
former executive of insider trading in advance of eBay Inc's
purchase of his e-commerce company.
The case against Christopher Saridakis, 45, is also notable
because it marks the first time the U.S. Securities and Exchange
Commission reached a so-called "non-prosecution" agreement with
an individual, an unnamed trader who it said provided "early,
extraordinary and unconditional" cooperation.
Federal prosecutors in Philadelphia charged Saridakis, who
led the marketing solutions division of GSI Commerce Inc, in a
so-called criminal information with securities fraud for leaking
material nonpublic information in March 2011 about eBay's plan
to buy his company.
Investigators said the resident of Greenville, Delaware,
encouraged two relatives and two friends to trade on his tips,
leading to more than $300,000 of illegal profits.
GSI shares rose nearly 51 percent on March 28, 2011, after
eBay, the online retailer, announced its $1.96 billion purchase
of the King of Prussia, Pennsylvania-based company.
The SEC said Saridakis agreed to pay $664,822 and accept an
officer and director ban to settle its charges. The cooperating
defendant and five other people agreed to pay more than $490,000
to settle related SEC charges. Three of these defendants got
lessened penalties because they cooperated with the regulator.
COOPERATION YIELDS BENEFITS
The U.S. Department of Justice has long used deferred
prosecution and non-prosecution agreements to encourage and
reward cooperation in criminal investigations, and the SEC in
January 2010 said it would also use them in its civil probes.
"Although Saridakis' tips spun a web of illegal trading,
some of the downstream tippees substantially assisted in our
investigation while others hindered it," Andrew Ceresney, head
of the SEC's enforcement division, said in a statement.
"The reduction in penalties for those tippees who assisted
us, together with the non-prosecution agreement for one of the
traders, demonstrate the benefits of cooperating with our
investigations," he added. "The increased penalties for others
highlight the risks of impeding our work."
Saridakis could face up to 20 years in prison and a $5
million fine if convicted in the criminal case, prosecutors
Richard Zack, a partner at Pepper Hamilton representing
Saridakis, said: "Chris accepts full responsibility for his
conduct in this matter, and has done everything he can to make
the situation right. He will continue to do so. He deeply
regrets the effect of his mistake on his family and friends."
According to the SEC, Saridakis tipped his friends Jules
Gardner, a retired marketing executive, and Suken Shah, a
doctor, about the eBay acquisition.
It said Shah then passed the tip to his brother and fellow
doctor Shimul Shah, who in turn tipped the individual who
entered the non-prosecution agreement.
According to the SEC, Saridakis and Gardner exchanged 23
text messages about the takeover on the night of March 20, 2011,
eight days before the transaction was announced.
"Do you own our shares?" Saridakis allegedly messaged.
"No, but it's cheap," Gardner responded.
"You should ... Soon."
"Tomorrow AM under $20."
The other settling traders were Oded Gabay, a hairdresser
who learned of the proposed acquisition from a different source,
and Aharon Yehuda, who operated a diamond business and had been
tipped by Gabay, the SEC said.
Gardner lives in Villanova, Pennsylvania; Suken Shah in
Wilmington, Delaware; Shimul Shah in Cincinnati; and Gabay and
Yehuda in New York, the SEC said. Gardner and Gabay received
lessened penalties because they cooperated, it added.
Mark Jay Krum, a partner at Diamond McCarthy who is
representing Gardner, said his client is cooperating in an
ongoing investigation with the U.S. government.
Lawyers for the remaining defendants did not immediately
respond to emails seeking comment.
(Reporting by Jonathan Stempel in New York and Sarah N. Lynch
in Washington, D.C.; Editing by Phil Berlowitz)