U.S. charges RBC analyst with insider trading ahead of client's merger

NEW YORK (Reuters) - U.S. prosecutors on Monday criminally charged a junior analyst at RBC Capital Markets with insider trading, saying he bought options in a digital printing company after learning it was in talks to be acquired by an RBC client.

FILE PHOTO: Shareholders leave the Royal Bank of Canada's (RBC) Annual General Meeting in Calgary, Alberta February 28, 2013. REUTERS/Mike Sturk

Bill Tsai, 23, who graduated last year from New York University’s Stern School of Business, was charged with one count of securities fraud, carrying a maximum 20-year prison term.

Prosecutors said Tsai, of New York, misappropriated nonpublic information to more than triple his investment in Electronics for Imaging Inc over a three-week period. The U.S. Securities and Exchange Commission filed related civil charges.

Tsai was arrested on Sunday and it was unclear whether he had a lawyer. He could not immediately be reached for comment.

RBC, part of Royal Bank of Canada RY.TO, said it had suspended Tsai and has a "zero-tolerance approach to any breach of the law or our code of conduct." It was not accused of wrongdoing.

Tsai was accused of buying Electronics for Imaging call options after learning it was negotiating a takeover by private equity firm Siris Capital Group LLC, an RBC client.

According to a criminal complaint, Tsai began purchasing the options on March 29, using a personal trading account he had concealed from RBC, and sold them less than two hours after the $1.6 billion merger was announced on April 15.

Electronics for Imaging’s share price rose 29.3% that day, and prosecutors said Tsai generated a $98,750 profit on his options, for which he had paid $28,410.

“His profits were not the result of trading acumen, diligent research, or blind luck,” U.S. Attorney Geoffrey Berman in Manhattan said in a statement.

Call options give purchasers the right to buy stock at a specific price in the future, in exchange for fees paid to the sellers, and are bets that the stock price will rise. Siris completed its purchase of Electronics for Imaging last month.

The cases are U.S. v. Tsai, U.S. District Court, Southern District of New York, No. 19-mag-07464; and SEC v Tsai in the same court, No. 19-07501.

Reporting by Jonathan Stempel in New York; Editing by Tom Brown