Some more developments in the Pajcin-Plotkin insider trading case:
Arrest of Grand Juror Is Latest Twist in Insider Trading Case
May 12, 2006
By MICHAEL J. DE LA MERCED
It started with suspicious trades by a retired seamstress in Croatia and grew to include a cast of low-level Wall Street professionals and an exotic dancer. Now, one of the largest insider trading scandals in decades has taken another unlikely turn — into the grand jury room.
A postal worker, Jason C. Smith of Jersey City, was arrested yesterday and charged with leaking secret information from grand jury proceedings to David Pajcin and Eugene Plotkin, the two men previously accused of running an insider trading ring that reaped $6.7 million in illegal profits in 2004 and 2005.
Mr. Smith, 29, served on a federal grand jury investigating possible accounting fraud at Bristol-Myers Squibb, and federal prosecutors said he arranged to call Mr. Pajcin and Mr. Plotkin from the courthouse so they could make profitable trades on the secret grand jury proceedings.
In yet a further odd twist, they were unable to profit on the tip, according to the complaints against Mr. Smith, because his information proved faulty.
The arrest introduces a new spin to one of the oldest crimes on Wall Street, investigators said. Mark K. Schonfeld, the Securities and Exchange Commission's Northeast regional director, said that Mr. Smith was the first person in an insider trading case to be accused of leaking grand jury testimony.
The scheme "not only corrupted securities markets but struck at the heart of our judicial system," Mr. Schonfeld said.
Michael J. Garcia, the United States attorney in Manhattan, said at a news conference yesterday that having an inside informant on a grand jury showed grave contempt for the law.
Mr. Smith, who is a letter carrier in Jersey City and who was a high school friend of Mr. Pajcin, was arrested at his home at 6 a.m. yesterday. He faces charges of insider trading and criminal contempt for breaking his grand jury oath of secrecy. The Securities and Exchange Commission amended its complaint in the case to add Mr. Smith as the 14th defendant. He was being held yesterday after bail was set at $3 million.
Yesterday's arrest is just the latest development in a case that seems to get more bizarre with each new charge. Prosecutors say that through accounts in the names of the dancer, who was Mr. Pajcin's girlfriend, and his aunt in Croatia, Mr. Pajcin and other defendants sought to trade on insider information from a variety of sources.
Their trades involved companies like Reebok, whose acquisition in 2005 by Adidas Salomon netted the ring more than $2 million through call options bought shortly before the deal closed.
Federal prosecutors in Manhattan described Mr. Smith as the third source of inside tips for Mr. Plotkin's and Mr. Pajcin's scheme. Charges of feeding the two information have already been filed against Stanislav Shpigelman, a former Merrill Lynch analyst, and Juan Renteria and Nickolaus Shuster, who were both employees of a BusinessWeek printing plant in Wisconsin.
Mr. Pajcin has been cooperating with federal authorities.
Mr. Smith was a grand juror in Newark in late 2003 in a case examining whether Bristol-Myers Squibb was inflating its profits by inducing wholesalers to buy more drugs than they needed, a practice known as channel stuffing. Mr. Smith contacted Mr. Pajcin and Mr. Plotkin in late 2004 or early 2005, and the three discussed sharing in profits from trading in Bristol-Myers shares, according to the criminal complaint.
Mr. Smith told Mr. Pajcin that a high-ranking Bristol-Myers executive testified multiple times before the grand jury, and that prompted Mr. Pajcin to sell short 2,000 shares of Bristol-Myers through the trading account of his aunt, Sonja Anticevic, the seamstress. A short sale is essentially a bet that a stock will fall. Mr. Pajcin also tipped two others, not named in the complaint, who also sold the stock short, prosecutors said.
But the executive was not indicted when the grand jury handed up its decision on June 14, 2005. Mr. Pajcin and the other traders closed out their short positions a day before the results of the investigation were made public, prosecutors contend.
If convicted on two charges of securities fraud and one charge of conspiracy, Mr. Smith would face as much as 45 years in prison. Mr. Smith also faces a contempt of court charge from federal prosecutors in New Jersey.
Mr. Smith's lawyer, Frank Handelman, said, "I'm glad bail was set, and I hope he gets out soon."
Mr. Smith may have been involved in the insider trading scheme in other ways. Prosecutors say they have a copy of a check for $7,000 that Mr. Smith made out to Mr. Pajcin to help finance the insider trading activity.
After the S.E.C. began investigating Mr. Pajcin's trades, Mr. Pajcin fled to Cuba. According to the complaint, Mr. Smith met him there and delivered about $10,000 from Mr. Plotkin. Prosecutors said that Mr. Pajcin and Mr. Plotkin went to Mr. Smith's home and destroyed the laptop computers, hard drives and cellphones used in executing their trades.
They said that in a recorded phone call on April 12, a day after prosecutors arrested Mr. Plotkin and Mr. Shpigelman, Mr. Pajcin, who has been in custody for months, told Mr. Smith that he was considering cooperating with regulators and advised him that he might tell the regulators about "the jury thing."
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