FBI arrests ShopClues founder Sandeep Aggarwal on insider trading charges

In some disturbing news from the local ecommerce sector, Sandeep Aggarwal, founder and CEO of Gurgaon-headquartered Clues Network, which runs online marketplace ShopClues, has been arrested in the US on insider trading charges. The arrest was made by FBI agents at San Jose, California. We are awaiting an official comment from ShopClues on the development. Update: ShopClues sent in an official statement responding to reports on Aggarwal’s arrest and what the development means for the company.

The charges primarily relate to Aggarwal, a former technology analyst, being accused of tipping off Richard Lee, a portfolio manager with SAC Capital, on a pending deal between Microsoft and Yahoo. SAC Capital is a $14 billion Wall Street hedge fund that has recently been charged with insider trading by the US authorities.

The charges against Aggarwal have been detailed in a press release issued by the US Attorney’s office. See contents below:

Tuesday, July 30, 2013

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), today announced conspiracy charges against SANDEEP AGGARWAL, a former equity research analyst for a financial services firm located in San Francisco, California (“the Firm”), for his alleged involvement in an insider trading scheme. As alleged, AGGARWAL provided material, nonpublic information (“Inside Information”) concerning a strategic partnership in internet search and advertising between Microsoft Corporation (“Microsoft”) and Yahoo! Inc. (“Yahoo”) (the “Partnership”) to at least two different hedge funds. AGGARWAL was arrested yesterday in San Jose, California, and will be presented today in federal district court in the Northern District of California.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Sandeep Aggarwal leveraged his contacts in the technology industry to obtain an illegal edge in the form of inside information about a highly anticipated development, and then lied about his criminal conduct. With his arrest today, we continue our work to investigate and prosecute privileged professionals who think the laws requiring honesty and fair play do not apply to them.”

FBI Assistant Director-in-Charge George Venizelos said: “Like many others before him, Sandeep Aggarwal allegedly broke the law and provided material non-public information on a Microsoft-Yahoo deal. When questioned by his employer about the source of the information, he lied. Yesterday’s arrest is the latest step in the FBI’s long-running investigation into insider trading in the hedge fund industry.”

In a separate action, the U.S. Securities and Exchange Commission (“SEC”) announced civil charges against AGGARWAL.

According to the Complaint unsealed today in Manhattan federal court:

On the evening of July 9, 2009, AGGARWAL learned from a friend who was an employee of Microsoft that discussions about the Partnership had recommenced and that a transaction was likely within the next few weeks. The next day, AGGARWAL provided information about the Partnership to at least two different hedge funds, including to Richard Lee, then a portfolio manager at SAC Capital Advisors LP. On July 10, 2009, AGGARWAL told Lee, in substance, that he had heard from a source – whom AGGARWAL described as “a senior guy at Microsoft” – that (a) senior Yahoo executives had been meeting with senior Microsoft executives at Microsoft’s offices; (b) senior Microsoft executives were making requests for information that suggested to the sources that a deal was likely to be completed soon; (c) the success of Microsoft’s Bing search engine had caused Yahoo to move closer to Microsoft’s offer; and (d) it was likely that the deal could be announced within the next two weeks. Thereafter, Lee’s hedge fund purchased several hundred thousand shares of Yahoo stock, and Lee purchased 25,000 shares of Yahoo stock in his personal account.

The complaint further alleges that, when the Firm’s management questioned AGGARWAL on July 10, 2009 about the information he was providing to hedge funds concerning the Partnership, AGGARWAL falsely denied having any Inside Information and claimed that his source was a person who had been retired from Microsoft for two years.

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AGGARWAL, 40, of Gurgon, India, is charged with one count of conspiracy to commit securities fraud, and one count of conspiracy to commit wire fraud. The conspiracy to commit securities fraud count carries a maximum sentence of five years in prison and a fine of the greater of $250,000, or twice the gross gain or loss from the offense. The conspiracy to commit wire fraud count carries a maximum sentence of 20 years in prison and a fine of the greater of $250,000, or twice the gross gain or loss from the offense.

Richard Lee pled guilty on July 23, 2013 to a criminal Information charging him with one count of conspiracy and one count of securities fraud in connection with insider trading between April 2009 through 2010, while he was employed by SAC Capital Advisors LP.

Mr. Bharara praised the investigative work of the FBI. He also thanked the U.S. Securities and Exchange Commission. He also noted that the investigation is continuing.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.

The case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys John J. O’Donnell and Arlo Devlin-Brown are in charge of the prosecution.

The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.


Aggarwal and ShopClues

Aggarwal founded ShopClues in June 2011 with Sanjay Sethi (formerly with eBay) and Radhika Aggarwal as an online marketplace that aims to enable offline merchants in India to sell their products online. Prior to founding ShopClues, Aggarwal worked as a financial analyst, specializing in equity research on the Internet sector, with Caris & Company. Before that he was with Collins Stewart (acquired by Cannacord Financial). The insider trading charges against Aggarwal pertain to the period when he was employed at Collins Stewart.

ShopClues, incorporated in Delaware, USA, launched in private beta in November 2011. The site offers more than 2,750 global and regional brands, more than 400,000 products and 1.2 million SKUs across 900-plus categories. The company ships orders to more than 9,000 cities and employs close to 350 employees in India across Gurgaon, Delhi, Mumbai and Vadodara.

The company was seed funded with $250,000 from Aggarwal’s own resources. In 2011, it raised a $2 million angel round from a group of individuals based in the US and India. This was followed by a $4 million Series A round from Nexus Venture Partners in 2012. In April this year, it raised a $10 million Series B round from Helion Venture Partners and Nexus.

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