David Pajcin Insider Trading Scandal
Ethical Scandal Analysis of: David Pajcin and Eugene Plotkin Insider Trading Case Presented In Partial Fulfillments of the Course Requirements for FIN 4615 International Banking Prepared for: Marcos A. Kerbel Adjunct Professor Department of Finance Florida International University Miami, Florida Prepared by: David Kevin Vargas 2899406 (954) 443-4973 November 24, 2009 [pic] | |Academic Honesty Policy | |Individual Assignment Cover Page | |Submitted to: | | | | Prof. Marcos A. Kerbel | | | | |Submitted by: | | | | David Kevin Vargas | | | |Your Phone Number: | | | |(954) 443-4973 | | | |Your e-mail: | | | | Dvarg013@fiu. du | | | |Date of Submission: | | | |November 24, 2009 | | | |Title of Assignment: | | | | Ethical Scandal Analysis | | | |CERTIFICATION OF AUTHORSHIP: I certify that I am the author of this paper and that any assistance I received in its preparation is fully acknowledged| |and disclosed in the paper.
I have also cited any sources from which I used data, ideas or words; either quoted directly or paraphrased I also | |certify that this paper was prepared by me specifically for this course. | | | |Signature | |____________________________________________________ | Ethical Scandal Paper David Pajcin and Eugene Plotkin Case What is the case about? This case is about two men, who along with many friends and relatives, elaborated intricate insider trading schemes.
Their plans involved forklift operators at a Business Week printing plant, a mole at Merrill Lynch & Co. , a grand juror in a fraudulent accounting trial against Bristol-Myers Squibb, and several brokerage accounts in New York, California and Croatia. The duo and their friends would end up reaping profits of close to $7 million during the short time their operations were active. The group’s own mistakes and greed drove them overboard and the long-reaching arm of the law finally caught up with them ending their plans and ambitions. Who was involved? David Pajcin He was one of the masterminds behind the insider trading schemes. He was born in Clifton, N. J. o Croatian immigrants. He went to school in Jersey City and later attended Notre Dame University. He majored in economics and graduated cum laude. With an impressive academic history, Pajcin got a job at the commodities group at Goldman Sachs after he got out of university in 2000. However, he did not stay long. He left after five and a half months. Pajcin said he did not want to be stuck working on the trading floors like everyone else. He took a series of similar jobs in smaller firms in New York but he never stayed in one of them for more than a couple of months. Finally, in 2003, he stopped looking for jobs and started working for himself. Eugene Plotkin
He was the other half of the operation and close friend of David Pajcin. Born in Russia, Plotkin moved to California and lived outside San Francisco as a child. He then went to the California Institute of Technology but transferred to Harvard after one year. Plotkin studied economics there and graduated in 2000. He went on to Goldman Sachs where he started working as a fixed-income research analyst before being promoted to associate. That is where he met his future partner-in-crime (Pajcin) and where he stayed working at until his arrest in 2006. At that time he had a six figure salary in one of the most prestigious companies in Wall Street, a good place to be by anyone’s standards.
Stanislav Shpigelman A secondary character, Shpigelman was a 23 year-old University of New York graduate. He and Plotkin had met at a college recruiting drive where Goldman Sachs had sent Plotkin to. The two kept in touch and one day met at Spa 88 in New York where they struck a deal and started working together on an insider trading scheme. Shpigelman provided Pajcin and Plotkin with inside information about possible mergers and acquisitions his company, Merrill Lynch & Co. , was working on. The biggest tip he gave involved the acquisition of Reebok International by Germany’s Adidas, in which Pajcin and his group made $6 million. Sonja Anticevic
She is a retired underwear seamstress, who lives in Croatia, she also happens to be David Pajcin’s aunt. Anticevic came into the scheme when she let her nephew use an account under her name to make his trades. Monika Vujovic She was an exotic dancer who worked in New York’s finest gentlemen’s clubs; she was also David Pajcin’s girlfriend. She became involved by letting her boyfriend use her accounts to make investments. Vujovic additionally tried to help Pajcin by getting important information from investment bankers who she danced for. That scheme never worked though. Jason Smith He was an old high school friend of David Pajcin and worked as a U. S. postal worker in New Jersey.
Smith had been selected to be a part of a federal grand jury in Newark that was hearing a case about possible fraudulent accounting practices at Bristol-Myers Squibb. Pajcin got information from Smith about the possible outcomes of the case and started trading based on those tips. No profits were made from Smith’s information though. Nickolaus Shuster He was a 23 year-old New Jersey native whom David Pajcin recruited in New York to get information on stocks mentioned in Business Week’s column ‘Inside Wall Street’. He went to Wisconsin to get a job at the plant where the magazine was printed. Pajcin would pay him between $200 and $500 for each Business Week issue he stole. Juan Renteria Jr.
He was the second man to be hired to get information from the Business Week printing plant. Nickolaus Shuster was fired for unknown reasons so Renteria was sent to replace him in mid 2005. In total, Pajcin and his group made 48 trades and $280,000 in gains using the information received from the Wisconsin plant. Scott Black The S. E. C. senior trial counsel who interrogated David Pajcin about the trades he made and the connection between the Business Week articles and his decision to buy certain stocks. Black spent more than 8 hours talking with Pajcin before his arrest and uncovered damning information he would later use against Pajcin to convince him to cooperate with the authorities.
David Markowitz He was the Securities Exchange Commission (S. E. C. ) lawyer in charge of prosecuting David Pajcin and his accomplices. He led the investigation after the Market Surveillance Unit at the S. E. C. caught strange patterns and high volume of options trading the day before the Adidas-Reebok deal would hit the airwaves. When and where did it happen? The insider trading ring conducted their operations between the autumns of 2004 and 2005. In that short period of time Pajcin and Plotkin had devised about 4 schemes that would help them make huge profits in the short term. The main operations where done in New York where the two masterminds lived.
However the people involved could be found as close as California and as far as Croatia. Eugene Plotkin’s father (Mikhail Plotkin) who traded on inside information provided by his son was in California. The plant where Business Week was printed was in Wisconsin. The case from which Pajcin got tips from one of the jurors was being heard in New Jersey. The account Pajcin used to trade under his aunt’s name was in Croatia. It was definitely a widespread ring of participants. Pajcin and his partner also had other accounts opened in Austria, Denmark and Germany according to S. E. C complaints. Why did it happen? Both David Pajcin and Eugene Plotkin were very bright and had promising careers in Wall Street.
It was the temptation to make grand amounts of money that lured them into the wrong path. They thought they could deal on inside information and not be caught because they were using other people’s names to trade with. In the end their own greed is what called the attention of the government and what brought their operations down. The lack of supervision at the Wisconsin printing plant and at the brokerage companies where the accounts were opened also contributed to this scandal occurring. How can it have been avoided? The main driver for the actions taken by the masterminds was internal. Their will to become rich overnight pushed them into breaking the law.
Nobody could have curtailed their desire to make more money at all costs, but the steps they took to make their ill-gotten profits could have likely been spotted and taken care of before they started generating so much money. Having better surveillance at the printing plant where Business Week was being made would have forestalled Shuster and Renteria from stealing copies to later relay the information in them to Pajcin and Plotkin. Knowing that the stocks mentioned in the column ‘Inside Wall Street’ were usually moved by either a good or bad review from the column’s author should have led the managers of that plant to enforce higher levels of surveillance.
The brokerage firms where Pajcin and Plotkin had their accounts could have also been more meticulous about their surveillance. It was reported in July 2005 that a customer service representative from Ameritrade got a peculiar call asking to change the restrictions on an account. The account belonged to Monika Vujovic but it was David Pajcin on the other side of the line. The Ameritrade representative recalled there was something odd about that call but unfortunately the account in question went on without being investigated or much less frozen. The company should have at least taken steps to verify the identity of the true owner of the account after getting a call like that.
Other ways that might have prevented, or helped prevent, the large-scale insider trading frauds would have been detecting the leak of information from Merrill Lynch (through Stanislav Shpigelman) earlier as well as the leak coming from Jason Smith, the juror in the Bristol-Myers Squibb case. What was the outcome? After the initial S. E. C. complaints against Sonja Anticevic, it was soon clear that the authorities were going to go after David Pajcin. So he fled to the Dominican Republic immediately to avoid getting caught. But even though the S. E. C. did not have the authority to keep him from leaving the country, they did have the authority to freeze his bank accounts.
It was not long before Pajcin found himself in need of cash. The prosecutors sent Pajcin an e-mail where they told him the only way to get his money back was by going back to New York to give a deposition. The greed was strong enough in Pajcin to make him go back to the United States. Once there he was interrogated by Scott Black and later arrested for insider trading. He was quickly convinced to cooperate with the authorities to crack down on the remaining ring members. David Pajcin then started working with the S. E. C. to close all the gaps in the case. In the end six people were sentenced on January 2008. The men sentenced were; Jason Smith, Nickolaus Shuster, Juan Renteria Jr. Stanislav Shpigelman, Eugene Plotkin and David Pajcin. For sharing information about upcoming mergers, Shpigelman got 3 years in prison. For insider trading and conspiracy, Eugene Plotkin got 5 years in prison. Pajcin on the other hand, was sentenced to 2 years in prison because of his cooperation but was released the day of the sentencing because by 2008 he had already served 2 years while working with the S. E. C. Civil suits were presented against six other people who were involved in the scheme, including Monika Vujovic and Sonja Anticevic. The case looked closed until November 2008, when it was reported David Pajcin had violated the terms of his 3-year supervised release. Nobody knew where e was, it was presumed he was out of the country, but it was clear he was now going to face additional jail time for failing to report to his probation officer. What can be learned from it? Clearly the lessons from this scandal are the same everyone should have already known from past insider trading scandals. Even though the gains made by this group were not tremendously big, the law and regulators went after it with all the resources available to them. It should be noted that even the smartest and brightest graduates from the best schools in the country can be corrupt. Their careers, training and hard work was so easily thrown away because of a major lapse in judgment.
David Pajcin and Eugene Plotkin, as well as those who helped them, are clear examples of the effects of greed on young impressionable minds. ——————————— 0 ——————————— References Anderson, Jenny and Michael J. De La Merced. “An Insider-Trading Case With a B-Movie Plot. ” New York Times. 30 April 2006. 08 November 2009. Gimbel, Barney. “Partners in Crime. ” Fortune. 04 October 2006. 12 November 2009. Glovin, David. “Ex-Goldman Analyst May Have Fled After Cooperating. ” Bloomberg. 04 November 2008. 30 October 2009. “Where is Fugitive David Pajcin?. ” Securities Docket. 13 March 2009. 30 October 2009. “A Scam Exposed: Strippers and Insider Trading. ” American Greed. Video. CNBC, 2009.
