Rorech/Negrin victory, Part I

The Securities and Exchange Commission's case against Jon-Paul Rorech of Deutsche Bank and Renato Negrin of the Millennium hedge fund -- a case that the Manhattan federal court derailed Friday -- attracted a good deal of attention when it was first filed, in May 2009.

Here is the Reuters coverage from that time, for example.

The man-bites-dog reason for the interest is that this was the first insider trading case involving what had only then become a headline-worthy sort of instrument in the mainstream media, credit default swaps (CDS). In this case, the CDSs' were bets for or against the solvency of a Dutch media company, VNU, which was a client of Deutsche Bank.

The case was a test of a new theory of jurisdiction for the SEC based upon the Commodity Futures Modernization Act of 2000, which extended the SEC's enforcement authority to "securities-based swap agreement[s]."

Here's an analysis that Law360 did in August.

Those of you who have a PACER subscription can read Judge Koeltl's decision dismissing the case Friday. Be assured, there is no charge for viewing opinions. But be warned, this one is 122 pages long.

The Wall Street Journal this morning has headlned it on p. C1 (the prime real estate for real finance wonks -- let the 'casual reader' look to A1!): "SEC Loss Shows Difficulty of Insider Cases," with the byline to Kara Scannell.

Frankly, I think that headline itself exhibits exactly the wrong emphasis. (Scannell of course can't be blamed for the headline.) We shouldn't worry about the costs imposed upon the poor SEC as it brings tricky enforcement actions pushing the boundaries of its jurisdiction. They'll be all right, the world is full of porn whereby they can console themselves. We should be concerned, rather, by the individuals whose lives are disrupted by the very act of bringing such a case. Courtroom vindication a year later doesn't give you that year of your life back.

The court conducted a non-jury trial of the case from April 7 to April 28 of this year. It has now issued its findings of fact and of law.

The only good news from the pro-enforcement point of view (never my own) is that the court agreed with the SEC about what Congress had meant to do with that CFMA language I quoted above. Koeltl writes, "[The] CDSs at issue in this case are security-based swap agreements for the purposes of section 206B of the Gramm-Leach-Bliley Act and are subject to 10(b)'s antifraud provisions...."

The bad news for enforcers? He didn't buy anything else they tried to sell him.

I hope to come back to this tomorrow.