Former Citi banker charged with insider trading
(Recasts; adds comments from lawyers, criminal indictments, details from complaint, byline)
By Rachelle Younglai
WASHINGTON (Reuters) - Federal prosecutors charged former Citigroup banker Maher Kara with securities fraud for tipping his brother about upcoming mergers, in an insider trading scheme that reaped more than $6 million in illegal profits.
Federal regulators also filed civil charges Thursday against the brothers and six other friends and relatives for allegedly participating in the scheme which spanned from New York to California and the Midwest for three years or more.
The U.S. Securities and Exchange Commission said that Maher Kara, a former director in Citigroup Global Markets' investment banking division in New York, repeatedly told his brother Michael about upcoming healthcare industry deals from at least April 2004 through April 2007.
Michael Kara bought stock and options in companies that were the subject of Citigroup deals and passed tips to his friends and family members, who also traded the securities illegally, the SEC alleged.
According to the complaint, the network of friends and relatives profited the most from illegally trading in securities of Biosite Inc, a California-based medical testing company; and Andrx Corp, a Florida-based pharmaceutical company specializing in generic drugs.
In February 2006, Maher Kara tipped his brother about a plan to acquire Andrx, the SEC said. Michael Kara then tipped his uncle, two friends and Maher Kara's brother-in-law, who all traded in Andrx securities before the merger announcement, the agency noted.
In March 2007, Maher Kara tipped his brother about an acquisition involving Biosite. Michael Kara then bought Biosite stock and options and tipped his friends and family, and traded in other people's online brokerage accounts, the SEC said.
In total, Michael Kara made more than $1.5 million from the scheme and those he tipped made more than $4.5 million, the SEC said.
Maher Kara left Citigroup in April 2007 and joined another investment bank, the SEC said. An agency official said Kara no longer works at the other bank, which the SEC did not identify.
A Citi spokeswoman said the bank "cooperated fully with the authorities during this investigation."
In sworn testimony during the SEC investigation, the Kara brothers each refused to answer questions citing their constitutional right to not have to give self-incriminating testimony.
Others involved in the alleged insider trading ring -- Emile Jilwan, Bassam Salman and Karim Bayyouk -- also invoked their Fifth Amendment rights in sworn testimony during the investigation.
The Federal Bureau of Investigation and the U.S. Attorney's Office for the Northern District of California indicted the Kara brothers and Jilwan.
Maher Kara's lawyer, Carl Loewenson of Morrison & Foerster, said his client "is innocent and looks forward to his vindication at trial." Calls to lawyers representing Maher's brother and their friends and relatives either had no comment or were not immediately available to comment.
Two people who benefited from Michael Kara's tips, Nasser Mardini and Joseph Azar, have agreed to settle the SEC's charges without admitting or denying the allegations. Mardini has agreed to repay illegal profits, and Azar has agreed to repay illegal profits and pay a penalty. The SEC is seeking the repayment of ill-gotten profits and financial penalties from the others.
SEC v Maher F. Kara, Michael F. Kara, Emile Y. Jilwan, Zahi T. Haddad, Bassam Y. Salman, and Karim I. Bayyouk, U.S. District Court Northern District of California, No. CV-09-1880-PJH.
SEC v Joseph Azar, U.S. District Court Northern District of California, No. CV-09-1881-MHP.
SEC v Nasser Mardini, U.S. District Court Northern District of California, No. CV-09-1882-SI. (Reporting by Rachelle Younglai; Editing by Richard Chang)