2 Charged With Stealing Code From Flow Traders Firm

Two men, one a former trader, have been charged with stealing secret computer code from a high-frequency trading firm in Manhattan in an effort to start their own business, the Manhattan district attorney’s office said. Another man was also charged in the scheme.

The former trader, Jason Vuu, who worked at Flow Traders in Manhattan, was charged with e-mailing himself trading strategies, valuation algorithms and proprietary code from the firm and sharing the code with Simon Lu, according to the district attorney, Cyrus R. Vance Jr.

Mr. Vuu sent copies of files from his work e-mail account to his personal e-mail address 10 times from August 2011 to August 2012, the complaint said. He also shared source code with Mr. Lu via the file-hosting service Dropbox after Mr. Lu suggested the code could help them start their own firm, according to the complaint.

Paul Shechtman, a lawyer for Mr. Lu, 25, of Pittsburgh, and Jeremy Saland, a lawyer for Mr. Vuu, 26, of California, did not immediately respond on Monday to requests for comment.

Another former trader at Flow Traders, Glen Cressman, 26, of Fort Lauderdale, Fla., was charged with copying files containing trading strategies and valuation algorithms without permission, according to the complaint.

Mr. Cressman’s personal e-mail account received copied files containing trading strategies and valuation algorithms twice in December 2012, according to the complaint.

Charles Ross, who represents Mr. Cressman, said his client was innocent.

“He was a fine employee, and when everything about the case is aired, it will be clear he did nothing wrong,” Mr. Ross said.

Mr. Lu, Mr. Vuu and Mr. Cressman face multiple counts of unlawful duplication of computer-related material and unauthorized use of secret scientific material. The charges carry up to four years in prison.

They were arraigned on the charges two weeks ago and are due back in court on Nov. 18, when they could face grand jury indictments.

A year ago, the Manhattan district attorney’s office charged a former programmer for Goldman Sachs, Sergey Aleynikov, with stealing secret trading code. Mr. Aleynikov was convicted in federal court, but an appeals court overturned his conviction in February 2012, restricting the use of a national law cited in the federal prosecutors’ case.

Mr. Aleynikov was then charged under New York state law. He has pleaded not guilty and is free on bail.

The charges in the Flow Traders case were reported earlier this week by The Wall Street Journal.

Two Charged With Stealing Source Code From NY Trading Firm

Jason Vuu, 26, a former trader at Flow Traders LLC in Manhattan, was charged with emailing himself trading strategies, valuation algorithms and proprietary code from the firm and sharing the code with another man, Simon Lu, 25, according to criminal complaints filed by the office of Manhattan District Attorney Cyrus Vance.

Another former trader at Flow Traders, Glen Cressman, 26, was charged with copying files containing trading strategies and valuation algorithms without permission, the complaints said.

Paul Shechtman, a lawyer for Lu, and Jeremy Saland, a lawyer for Vuu, did not immediately respond to requests for comment on Monday.

Charles Ross, who represents Cressman, said his client was innocent.

"He was a fine employee, and when everything about the case is aired, it will be clear he did nothing wrong," Ross said.

A lawyer for Flow Traders, which according to its website is an international proprietary trading house headquartered in Amsterdam, could not be reached immediately for comment.

The three men were arraigned on the charges two weeks ago and are due back in court on November 18, when they could face grand jury indictments. Lu currently resides in Pittsburgh, Vuu in California, and Cressman in Fort Lauderdale, Florida, according to prosecutors.

The arrests came a year after Vance's office charged former Goldman Sachs Group Inc. programmer Sergey Aleynikov with stealing secret trading code. Aleynikov had been previously been convicted in federal court for the same actions, but his conviction was thrown out in February 2012 by an appeals court, which said federal espionage laws did not cover his alleged theft.

Vance then charged Aleynikov under New York state law. Earlier this year, a judge denied Aleynikov's attempt to have the state charges dismissed on double jeopardy grounds. Aleynikov, who pleaded not guilty, is free on bail.

Both Vance and the U.S. attorney for Manhattan, Preet Bharara, whose office brought the initial case against Aleynikov, have made combating computer crime and corporate espionage a top priority.

Lu, Vuu and Cressman all face multiple counts of unlawful duplication of computer-related material and unauthorized use of secret scientific material, the same charges Aleynikov is facing. The charges carry sentences of up to four years in prison.

Vuu sent copies of files from his work email account to his personal email address 10 times from August 2011 to August 2012, the complaint said. He also shared source code with Lu via the file-hosting service Dropbox after Lu suggested the code could help them start their own firm, according to the complaint.

Cressman's personal email account received copied files containing trading strategies and valuation algorithms twice in December 2012, according to the complaint.

The charges were first reported by The Wall Street Journal.

(Reporting by Joseph Ax; editing by Noeleen Walder, Dan Grebler and Leslie Adler)

DealBook: Former Partner at KPMG Charged With Insider Trading

Federal Bureau of InvestigationScott London, left, of KPMG, accepting payment from Bryan Shaw.

11:05 p.m. | Updated

The payments came in various forms. There were envelopes of $100 bills wrapped in $10,000 bundles. There were expensive tickets to a Bruce Springsteen concert. There was a 2011 Rolex Cosmograph Daytona valued at $12,000.

Bryan Shaw, a jeweler in the Los Angeles area, bestowed these gifts upon Scott I. London, a senior executive at the accounting giant KPMG. It was the least that he could do for Mr. London, who routinely gave him secret information about KPMG’s clients. Mr. Shaw traded on the tips, earning more than $1 million in illegal profits.

Prosecutors filed criminal charges against Mr. London on Thursday, laying bare a brazen two-year insider trading scheme. Mr. Shaw was not criminally charged, but named in a related civil action brought by the Securities and Exchange Commission. In recent days, both men have publicly confessed to their misconduct.

“As a leader at a major accounting firm, London’s conduct was an egregious violation of his ethical and professional duties,” said Michele Wein Layne, director of the S.E.C.’s Los Angeles office.

Early this year, Mr. Shaw turned against Mr. London after investigators confronted him with evidence of insider trading. He became a government informant, recording telephone conversations and in-person meetings to help the authorities build a case against Mr. London.

“He viewed it as an unfortunate but necessary part of the process to making things right,” said Nathan J. Hochman, a lawyer for Mr. Shaw. Last month, Mr. Shaw participated in a sting operation to ensnare Mr. London. The F.B.I. provided Mr. Shaw with $5,000 in cash, which was placed in a manila envelope and then wrapped in a black paper bag. Mr. Shaw met Mr. London in the parking lot outside of a Starbucks and handed him the bag.

Federal agents took photographs of the exchange, and included one of them in the government’s complaint. Two weeks later, two F.B.I. officials showed up at the home of Mr. London, who admitted his crimes.

J. Emilio Flores for The New York TimesScott London, right, a former senior partner at KPMG, with his lawyer, Harland Braun.

The sting was an ignominious end to what had been a flourishing friendship in the San Fernando Valley. Mr. London and Mr. Shaw met in 2005, shortly after Mr. Shaw joined the North Ranch Country Club in Westlake Village, Calif. They frequently golfed together and socialized with each other’s families.

Mr. London, a former college baseball player at California State University, Northridge, spent his entire career at KPMG. He worked at the firm for about 29 years, rising to a senior partner in the firm’s Los Angeles office, where he supervised more than 500 accountants and oversaw the audits for some of its most important clients. He established himself as a player in Los Angeles business circles, joining the board of the city’s Chamber of Commerce and serving as chairman of the Los Angeles Sports Council.

Meanwhile, Mr. Shaw’s family-owned jewelry business was sputtering, having been particularly hard hit by the financial crisis. Mr. London said that in 2010, he began to give Mr. Shaw confidential information about his clients because of Mr. Shaw’s deteriorating economic situation.

Over two years, Mr. London secretly passed confidential information to Mr. Shaw about several KPMG clients, including Herbalife, the nutritional supplement company; the footwear manufacturers Skechers and Deckers Outdoor Corporation; and Pacific Capital Bancorp, the government said.

Late Thursday, KMPG’s chief executive, John B. Veihmeyer, said that the firm would soon be bringing legal action against Mr. London.

The tips started with leaks about companies’ quarterly earnings announcements, but escalated into more lucrative secrets about pending mergers and acquisitions.

The case surfaced earlier this week, when KPMG issued a statement saying that it had fired the partner in charge of its audit practice in Southern California because of an insider trading violation and that it was resigning as auditor for two companies — Herbalife and Skechers — because its independence had been compromised.

Even before the government filed its charges, Mr. London and Mr. Shaw had publicly confessed to their misconduct.

“I regret my actions in leaking nonpublic data to a third party,” Mr. London, 50, of Agoura Hills, Calif., said in a statement on Tuesday. “What I have done was wrong and against everything that I had believed in.”

Mr. Shaw, 52, of Lake Sherwood, Calif., said he accepted “full and complete responsibility for what I have done and know that I will spend the rest of my life trying to make up for my tragic lapses of judgment.”

Herbalife proved to be an especially fertile source of illegal tips. The company’s shares have been volatile because of a public feud between prominent investors — William A. Ackman, who has a big bet in place against the company, and Carl C. Icahn, who owns a big stake — over the value of its stock.

In a telephone conversation that Mr. Shaw secretly recorded in February, Mr. London discussed rumors that Herbalife might be a takeover target, and outlined a classic strategy of insider trading schemes.

“What we ought to do is, when I know that it’s going to start happening, what you do is you start just buying in small blocks, right, so it doesn’t draw attention and then, you know, then it doesn’t look unusual at all,” Mr. London said.

Though Mr. Shaw was struggling financially, he rewarded Mr. London handsomely for the tips. He paid Mr. London more than $50,000 in cash, according to prosecutors, which he usually delivered in bags outside his store, Shaw Diamond Company, on Ventura Boulevard in Encino.

Mr. Shaw also routinely covered the cost of dinners and concerts they attended with their families, including a Springsteen show. All told, Mr. London received more than $100,000 worth of kickbacks.

Federal authorities opened an investigation last fall, after the brokerage firm Fidelity raised red flags about activity in Mr. Shaw’s account.

Last summer, Fidelity froze the account, and Mr. Shaw called Mr. London in a panic, expressing worry that they had been found out.

“Mr. Shaw said that Mr. London reassured him that there was no reason for concern, and explained that insider trading was like counting cards at a casino in Las Vegas,” the government’s complaint said. “If you were caught, they simply ask you to leave because they cannot prove it.”

Lynnley Browning and Michael J. de la Merced contributed reporting.

Ex-Oregon Governor Candidate Charged in Facebook IPO Fraud

Craig Berkman, 71, falsely told investors he had access to scarce pre-IPO shares of Facebook and other social media companies such as LinkedIn Corp, Groupon Inc and Zynga Inc, the U.S. Securities and Exchange Commission said in a statement.

But instead of buying shares for investors as promised, Berkman made "Ponzi-like" payments to earlier investors and funded personal expenses, including costs in a bankruptcy case, according to the SEC, which filed a civil case.

The defendant received at least $8 million from various schemes, according to U.S. Attorney Preet Bharara in Manhattan, which filed criminal charges against Berkman.

"Berkman blatantly capitalized on the market fervor preceding highly anticipated IPOs of Facebook and other social media companies to fleece investors whose cash flow he treated like an ATM to fund his own living expenses and pay court-ordered claims to victims of his past misdeeds," said Andrew Calamari, director of the SEC's New York office.

Berkman was arrested at his home in Odessa, Florida, and was expected to appear in a Tampa, Florida federal court on Tuesday.

The Manhattan U.S. Attorney's Office charged Berkman with two counts of securities fraud and two counts of wire fraud. Each count carries a maximum of 20 years in prison.

In one allegation, more than 50 investors sent $4.6 million into a bank account controlled by a Berkman entity called Ventures Trust II, according to the complaint filed by the Manhattan U.S. Attorney's Office.

Berkman told investors the funds would be used to buy pre-IPO shares of Facebook, but instead the "vast majority" was transferred to other accounts Berkman controlled for his own personal benefit, according to the complaint.

Berkman has long been active in Oregon politics and served for a time as the head of the state's Republican Party, according to press accounts. He lost in the Republican primary for governor in 1994, and he explored a bid for governor in the 2002 race, according to The Oregonian.

The SEC's order details what the agency called a "recidivist history" for Berkman.

The Oregon Division of Finance and Securities issued a cease-and-desist order and a $50,000 fine against Berkman in 2001 for offering and selling convertible promissory notes without a brokerage license, according to the SEC statement.

In 2008, an Oregon jury found Berkman liable in a private action for breach of fiduciary duty, conversion of investor funds and misrepresentation to investors related to his involvement with a purported venture capital firm, according to the SEC.

Berkman reached a settlement with the firm, called Synectic Ventures, after it filed an involuntary Chapter 7 bankruptcy petition against him in 2009 for debts he didn't pay related an earlier judgment against him for $28 million, according to the SEC.

Rather than use his own money to pay the claims, Berkman spent more than $5.4 million from investors in his pre-IPO offerings to make payments in the bankruptcy settlement, according to the SEC.

The SEC brought a separate case against John Kern of Charleston, South Carolina, whom it said took part in the fraud as legal counsel to some of Berkman's companies.

Marc Blackman, a lawyer for Berkman, was not immediately available for comment.

It was not immediately clear whether Kern has hired a lawyer for his defense. Kern was not immediately available for comment.

The criminal case is U.S. v. Berkman, U.S. District Court, Southern District of New York, No. 13-mg-00732.

(Editing by Bernadette Baum and Richard Chang)

DealBook: Wells Fargo Banker and 9 Others Charged With Insider Trading

The Securities and Exchange Commission accused a Wells Fargo investment banker of insider trading on Wednesday, saying that he and others took advantage of nonpublic information he obtained about merger deals involving clients.

The agency said that the banker, John W. Femenia, 30, would pass along information to a friend, Shawn C. Hegedus, who worked as a stockbroker. The two tipped other friends, who in turn passed along the information to other friends or family members, the civil complaint said. All told, the group garnered more than $11 million in illicit profits trading, the agency said.

“Here you have an investment banker who clearly knew better that inside information can’t form the basis of trading decisions,” William P. Hicks, associate director for enforcement in the S.E.C.’s Atlanta office, said in a statement. “Instead he basically started a phone tree of nonpublic information to enrich friends and others.”

Mr. Femenia is accused of tipping others about four merger deals included the acquisition of the Smurfit-Stone Container Corporation by the Rock-Tenn Company and the sale of the Shaw Group to Chicago Bridge & Iron.

The agency said that Mr. Femenia, who works for Wells Fargo Securities in New York, obtained most of the information about the deals when he worked for the firm in Charlotte, N.C.

“Wells Fargo has detailed policies and training programs on the handling of confidential information, and we have a zero-tolerance policy for the misuse of such information,” a Wells Fargo spokeswoman said in a statement. ‘We learned about the underlying allegations yesterday and are assisting and fully cooperating with the S.E.C. and other agencies in these proceedings.”

According to the S.E.C.’s civil complaint, the recipients of the tips traded in the stock and options of the companies being acquired in the deals, and at least one trader provided a portion of his profits to Mr. Femenia in exchange for the information.

Medicare Fraud Charged Against 91

WASHINGTON (Reuters) — Ninety-one people including doctors, nurses and other medical professionals were charged criminally after an investigation of Medicare fraud that involved $430 million in false billing in seven cities, officials said on Thursday.

It was the government’s second big raid in recent months after a similar investigation in May involving $452 million in possible fraud in Medicare, the health program for the elderly and disabled.

The accusations include billing the government for unnecessary ambulance rides in California, writing prescriptions for patients in Dallas who did not qualify for them and paying kickbacks like food and cigarettes to patients in Houston if they attended programs for which a hospital could bill.

The investigation is part of an effort by the Obama administration to find health care savings.

Indictments against the 91 defendants were unsealed on Thursday after a coordinated investigation led by the departments of justice and of Health and Human Services, officials said. Most of the 91 surrendered or were arrested.

Those charged were trying to make a living by defrauding Medicare and its sibling program, Medicaid, which insures the poor, the officials said.

Of the 91 people charged this week, 33 were involved in false billing in the Miami area. In separate cases, people were accused of improperly billing the government for home health and mental health services.

Officials said they had found an additional $42 million in improper claims at a Houston hospital, Riverside General, where they earlier said they had found $116 million in fraud.

In those cases officials said patients had received cigarettes and other kickbacks if they attended a partial hospitalization program. Some patients watched TV instead of receiving services there, the government said.

Riverside General’s president was among seven employees facing charges on Thursday.

Later on Thursday, a Riverside General clerk read a statement by phone saying the hospital’s board was “saddened as to the tactics utilized against this hospital” but backed its president, Earnest Gibson III. The board was awaiting legal advice and had no further comment, she said.