S.E.C. v. RORECH

720 F.Supp.2d 367 (2010)

SECURITIES and EXCHANGE COMMISSION, Plaintiff,

v.

Jon-Paul RORECH and Renato Negrin, Defendants.

No. 09 Civ. 4329 (JGK).

United States District Court, S.D. New York.

June 25, 2010.

---

OPINION AND ORDER

INTRODUCTION                                                              370

FINDINGS OF FACT                                                          374

I. Background                                                             374

A. The Parties Involved                                                   374

1. The Defendants                                                         374
2. Deutsche Bank Employees                                                374
3. Investors                                                              375

B. CDSs and Bonds                                                         375

C. The Flow of Information in High Yield Bond Offerings                   376

II. The VNU Bond Offering                                                 377

A. The Original Bond Issuance                                             377
B. Deliverability Questions Arose                                         378
C. Investors Expressed Interest in Deliverable Bonds                      379
D. The Basis Trade Idea Was Developed                                     380
E. Deutsche Bank Worked to Resolve the Deliverability Issue               381

III. The Cellular Phone Calls and Mr. Negrin's VNU CDS Trades             382

A. The Cellular Phone Calls Between Mr. Rorech and Mr. Negrin             382
B. Mr. Negrin's VNU CDS Trades                                            387

IV. Mr. Rorech's Actions as a Deutsche Bank Salesman                      387

A. Mr. Rorech's and Others' Efforts to Sell the VNU Bonds                 387
B. Mr. Rorech's Pitch to Millennium                                       388
C. Whether Mr. Rorech Thought He Was Acting Illegally in Attempting to
Sell the Bonds                                                            390

V. Mr. Negrin's Actions at Millennium                                     391

A.  Mr. Negrin's Practice of Trading VNU CDSs                             392
B.  Mr. Negrin's Reasons for Purchasing the VNU CDSs                      392

VI. Deutsche Bank's Confidentiality Policies                              393

A.   Deutsche Bank's Confidentiality Policy, Its Engagement Letter with
VNU, and Expected Uses of Indications of Interest                         393
B.   Deutsche Bank's Wall-Crossing Procedures                             395

C. Deutsche Bank's View Whether Their Confidentiality Policies Were
Breached                                                                  397
D. VNU on Deutsche Bank's Restricted List                                 397

VII. Information About the VNU Bond Issuance in the Market                398

VIII. Facts Relevant to the Court's Jurisdiction                          400

A. The Relationship Between VNU Bond Prices and Yields and CDS
Prices                                                                    400
B. The Relationship Between the Value of VNU Bonds and CDS Prices         402
C. Section 9.9 of the 1SDA Definitions                                    403

CONCLUSIONS OF LAW                                                        403

I. Subject Matter Jurisdiction                                            404

A. Statutory Provisions                                                   404
B. The Meaning of "Based On"                                              405
C. The Price Term of the CDSs Was "Based On" the Price, Yield, and
Value of VNU Securities                                                   407
D. Section 9.9 of the ISDA Definitions Was a Material Term of the CDSs
and Was "Based On" the Price of Securities                                407

II. Misappropriation Theory                                               408

A. Mr. Rorech's Conduct                                                   409

1. Mr. Rorech Did Not Know that Deutsche Bank Would Recommend
that the Sponsors Issue the Holding Company Bonds at the Time
of His Calls with Mr. Negrin                                              409
2. The Information Mr. Rorech Did Know at the Time of the Calls
Was Not Material                                                          410

a. Information Regarding the Potential Restructuring                      411
b. Information Regarding Customers'Indications of Interest                411

3. Sharing the Information Mr. Rorech Did Know Was Not a Breach
of His Duty of Confidentiality                                            412

a. Information Regarding the Potential Restructuring                      413
b. Information Regarding Customers'Indications of Interest                413

B. Mr. Negrin's Conduct                                                   414

C. Scienter                                                               415

CONCLUSION                                                                416

INTRODUCTION

---