TALLINN - In the wake of a scandal that made international headlines last November, the Central Criminal Police has declared two employees of Estonia's Lohmus Haavel & Viisemann investment firm, both allegedly accused of violating deals on the U.S. securities market, suspects in a criminal offense.
Public prosecutor Piret Paukstys said that LHV employee Oliver Peek and his partner Kristjan Lepik were suspected of making security deals under the Penal Code article relating to persons in possession of confidential information.
"The Central Criminal Police will actively continue the criminal proceeding, and the circle of suspects will most likely expand in the near future," Paukstys told the Baltic News Service.
So far, she said, none of the suspects have pleaded guilty. "An analysis of information that has arrived from the United States is now going on. Estonian authorities have not regarded it as necessary to make any arrests concerning the suspects' property," the public prosecutor said.
The United States Securities and Exchange Commission (SEC) is accusing the LHV investment bank and several of its employees in the theft of confidential business information from the Business Wire Web site. According to the indictment, LHV clients earned nearly 100 million kroons (6.4 million euros) of illegal profit since the beginning of last year by using that information.
The public prosecutor's office took criminal action to investigate the incident in mid-November, on the basis of a statement by the Financial Supervisory Authority.
Kaido Tropp, board member of the Financial Supervisory Authority, previously told the Baltic News Service that, in making the statement, the authority relied on a civil suit filed by the U.S. Securities and Exchange Commission to the south regional court of New York on Nov. 1, 2005, alongside data and documents collected in the course of its supervisory proceeding.
According to the penal law, a person is liable to a fine or imprisonment of up to one year if the person in possession of confidential information uses it to make a securities deal or recommends such a deal to a third person.
LHV representative Tonno Vahk said that it was natural for a criminal case to be taken, considering the Financial Supervisory Authority and respective U.S. institutions' suspicions.
"LHV, whose reputation and interests have been significantly damaged by the deals under investigation, is interested in a fast and effective proceeding in the criminal case. LHV fully supports the investigation and is ready for all-round cooperation with the body conducting the proceeding," Vahk wrote on the company Web site last year.
The SEC first announced that it suspected fraudulent trading on Oct. 31, 2005. "Foreign traders used a computerized 'spider' program to fraudulently steal nonpublic issuer press release information from commercial wire service," the commission reported.
LHV and its employees Peek and Lepik, the commission stated, stole and traded in advance more than 360 confidential press releases issued by more than 200 U.S. public companies. The SEC further alleged that the defendants had made at least $7.8 million in illegal profits since January 2005.
The inside information enabled the defendants to time their trades around the public release of news involving mergers, earnings and regulatory actions, the commission complained. After stealing companies' confidential press release information, the SEC alleged that Peek and Lepik bought long or sold short the stocks from those firms, and purchased options to increase their profits.
At the time, the investment company's CEO, Rain Tamm, said the SEC was premature in its accusations. "We have our own theories of how we could be linked with this, but they have to be first confirmed by the investigation we launched," he said.
A hearing on the SEC's request was scheduled for Nov. 8.
