A money manager said it was unusual for him and a
Deutsche Bank AG salesman to switch mid-conversation to cell phones from a recorded landline, addressing a key piece of evidence in U.S. regulators' first case involving alleged insider trading in credit-default swaps.
Renato Negrin, the first witness in the nonjury trial that began yesterday before a federal judge in New York, said he couldn't recall why he and co-defendant Jon-Paul Rorech of
Deutsche Bank switched to cell phones or what the substance of the conversation was.
“I would say that it happened but it is unusual,” Negrin said in response to a question from Richard G. Primoff, a lawyer for the Securities and Exchange Commission, about how often during a typical business day Negrin moved a conversation from a landline to a mobile phone.
Rorech, a bond and credit-default swap salesman at
Deutsche Bank Securities, is accused in the civil suit of illegally feeding information on a bond sale to Negrin, a former Millennium Partners LP portfolio manager. Negrin bought swaps to reap a $1.2 million profit when the 2006 deal was announced, the SEC said in its complaint filed in May.
The SEC says the cell-phone switch is evidence the two men knew what they were doing was wrong.
The agency didn't accuse Frankfurt-based
Deutsche Bank or New York-based
hedge fund Millennium of wrongdoing. Rorech is on paid administrative leave from Deutsche Bank.
Rorech, 39, and Negrin, 46, argue that the SEC has no jurisdiction over the credit-default swaps because they're private contracts, not securities.
U.S. District Judge John G. Koeltl in Manhattan is hearing the case.
The commission's suit focuses on efforts by the Dutch media company VNU Group BV, later renamed Nielsen Co., to restructure its debt in 2006 as part of a 7.5 billion euro ($10 billion) leveraged buyout.
The SEC said Rorech tipped Negrin about the restructuring before that announcement. Negrin bought 20 million euros of swaps, and profited by selling them after the deal was announced and the swap price rose.
“I bought the VNU CDS because the price of the credit-default swaps was not reflecting the leverage of the VNU Holdco,” Negrin testified yesterday. “I believed that the deliverability issue was going to get resolved.”
Rorech countered in court papers that the same information the SEC says he gave Negrin in those calls he gave to other customers on recorded calls, and that the information about the deal restructuring was speculative at the time.
Rorech had no legal duty to keep the information confidential, Richard Strassberg, a lawyer for Rorech, said in his opening statement. He couldn't have breached his duty to
Deutsche Bank because the bank wanted him to discuss the bond issue with potential buyers, Strassberg said.
The fact that Negrin bought half his VNU swaps from Deutsche Bank, and resold and reassigned all of them to the bank, showed he wasn't trying to conceal the trades from “the entity that the SEC claims is the victim in this case,” Negrin's lawyer Lawrence Iason said in his opening statement.
