SEC’s First-Ever Credit Default Swap Insider Trading Case Survives Motion to Dismiss

On May 5, 2009, the Securities and Exchange Commission (SEC) commenced an insider trading enforcement action against Jon-Paul Rorech, a Deutsche Bank bond and credit default swap salesman during the relevant period, and Renato Negrin, a portfolio manager employed during the relevant period by hedge fund adviser Millennium Partners, L.P.  This case is the first insider trading case the SEC has brought with respect to credit default swaps, which are not registered securities.  The SEC alleged that Rorech and Negrin engaged in insider trading of the credit default swaps of VNU N.V., a Dutch media conglomerate.  The defendants moved to dismiss the complaint primarily on the basis that credit default swaps were not “securities based swap agreements” for purposes of insider trading law.  Rorech also argued that the relevant information was not confidential and that the SEC lacked jurisdiction over foreign bonds.  The court rejected their contentions and allowed the SEC’s case to proceed.  We review the arguments made and the court’s rationale for its decision.  See also “SEC Brings First-Ever Credit Default Swaps Insider Trading Case,” Hedge Fund Law Report, Vol. 2, No. 19 (May 13, 2009).

To read the full article

Continue reading your article with a HFLR subscription.