Friends charged with insider trading on Apollo/Cooper deal

Two men who illegally profited from inside information regarding Apollo Tyres’ plans to acquire Cooper Tire & Rubber in 2013 have been charged by the US Securities and Exchange Commission.

In a statement issued on 2 April, the SEC confirmed the filing of fraud charges in the US district court in Connecticut against “long-time friends” Amit Kanodia, a Massachusetts-based entrepreneur and private equity investor, and Iftikar Ahmed, a general partner at a venture capital firm in Connecticut. The SEC named Rakitfi Holdings LLC, a company owned by Ahmed, and Lincoln Charitable Foundation, a supposed charity operated by Kanodia, as relief defendants. The SEC is seeking the return of the defendants’ “allegedly ill-gotten gains” along with the payment of interest and civil monetary penalties. The US Attorney’s Office for the District of Massachusetts has also announced parallel criminal charges against Kanodia and Ahmed.

The SEC alleges that by April 2013, Apollo Tyres was engaged in serious negotiations to acquire Cooper Tire & Rubber. Although the acquisition was never completed, the complaint filed by the SEC alleges that that Cooper Tire’s stock price jumped 41 per cent following the June 2013 acquisition announcement. The complaint also alleges that prior to the acquisition announcement, Kanodia gave Ahmed and another friend information about these negotiations after learning of them from his wife, then the general counsel at Apollo and thus intimately involved in the tyre maker’s efforts to acquire Cooper Tire.

According to the SEC’s complaint, Kanodia shared the highly confidential information with Ahmed, who then began buying significant amounts of Cooper Tire stock and options. Once news of the deal was public, Ahmed immediately liquidated his Cooper Tire holdings, making a profit of more than US$1.1 million in the process. The SEC alleges that Ahmed later paid Kanodia a kickback by transferring $220,000 to Lincoln Charitable Foundation, a supposed charity that Kanodia controlled and used to mask the kickback.

A second close friend of Kanodia, identified in the complaint as ‘Tippee 1’, also profited by trading on the confidential information provided by Kanodia and paid a portion of his illicit gains to Kanodia using the same supposed charity, the SEC’s complaint further alleges.

“We allege that Kanodia gave inside information to two close friends who then kicked back a portion of their insider trading profits to a supposed charity that Kanodia controlled,” said Joseph G. Sansone, co-deputy chief of the SEC Enforcement Division’s Market Abuse Unit. “Despite Kanodia’s attempts at concealment, the SEC staff was able to uncover and unravel the scheme.”

The SEC’s complaint charges Kanodia and Ahmed with violating US federal anti-fraud laws and a related SEC ant-fraud rule. Rakitfi Holdings and Lincoln Charitable Foundation are named as relief defendants in the SEC’s complaint for the purpose of recovering the aforementioned trading gains.