A former SAP executive and his associates allegedly ran an insider trading ring to net hundreds of thousands of dollars.
Chris Salis was, until recently, global vice president and general manager for procurement at SAP. US financial watchdog the SEC claims he used his inside knowledge of SAP's takeover of Business Objects in 2007 and travel application vendor Concur Technologies seven years later to make stock-market trades that netted the conspirators more than $500,000 in illicit returns.
According to papers filed today [PDF] in the northern district of Indiana, in 2007 Salis was marketing director at Business Objects (BO) when the company started talks to be bought out by SAP. On October 1 that year, SAP entered into formal talks on the matter and on the same day, Douglas Miller, a college friend who picked Salis as his best man, activated a dormant Scottrade account and deposited a $9,900 check.
The SEC claims Salis entered the account two days later and used the account to buy options for BO's stock. These weren't stock purchases, but merely the right to buy stock at a certain time for a set price, and are considered a risky investment.
On October 7, SAP announced its plans to buy BO for $6.8bn and the latter firm's shares rocketed upwards. Salis then entered Miller's account and closed the trades, realizing $42,296 in profits, the complaint states. Miller withdrew the sum from the account in amounts of between $8,500 and $9,900, small enough to avoid reporting, it's claimed.
The scheme went undetected and it appears that no further attempts to profit from the acquisition were made, the watchdog notes. Then in 2014, SAP began negotiations to buy travel and expenses management firm Concur Technologies; the SEC accuses the duo of taking advantage of the information.
The agency notes that while Salis – now at SAP – had no role in the takeover, he shared an office floor with four people who did, and worked close by an employee involved in the due diligence. In August 2014, SAP made a series of offers for Concur and eventually agreed on a price of $129 per share, valuing Concur at $8.3bn.
Salis and Miller were in regular contact during the run-up to the negotiations. SEC alleges Miller, who owned a struggling car wash business with his brother Edward, tipped off his sibling and parents about the deal
"I usually tell nobody Dad ... But I figured you and Mells [Edward Miller] could use a little taste but you'll know nothing about the name ... to keep in dark," David Miller said in a text message to his father, according to the SEC.
The next day, the Miller brothers opened new Scottrade accounts and two days later their mother reactivated her account, which had been lying fallow with one cent in the balance, it is alleged. On the day the Concur directors instructed staff to close the deal, Douglas Miller applied for and received authorization to trade using the accounts owned by his brother and mother, the SEC claims.
There was one problem – option trading requires a deposit that takes three days to clear. The Millers called Scottrade 11 times trying to find out a way to use their accounts directly, and eventually got cashier's checks for $23,800 and hand-delivered them to a corporate office 30 minutes' drive away, we're told.
"We all tried to fly under the radar of investing under 10k bro," Douglas Miller texted his brother, according to the SEC.
Miller then accessed his brother's and mother's accounts and began making trades. According to the SEC, he purchased options on Concur's stock: if the price of the shares rose over the next two months, the family would make a lot of money, and if the price fell, they would lose their investment.
"The Millers' options purchases were extremely aggressive and risky. Moreover, the Millers used the entirety of their available funds in their accounts to purchase these options," the SEC's court filing reads.
"Concur's share price failed to increase by more than $15 in the next 26 days or more than $10 in the next 54 days, the options would expire worthless, and each of them would lose almost $10,000."
Douglas Miller also spoke to a friend, Barrett Biehl, who then made a series of option calls on Concur's stock, the SEC claims. Biehl and a person described as Friend 1 made a series of bets on the stock price rising, we're told.
On September 17, SAP and Concur agreed to terms of the takeover and Salis, then at SAP headquarters in Germany, phoned Douglas Miller for six minutes, it is alleged. Miller then placed more option orders using his, his brother's, and their mother's accounts, the SEC claims.
Hours before the merger was made public, Miller called Scottrade on a recorded line and asked for details of how he could sell his options, saying he was "just trying to prepare [himself] if something happened," we're told.
After news broke that Concur had been bought by SAP, and the stock had risen 18.4 per cent, all the participants closed out their options, earning $505,332, according to the SEC. Douglas Miller, Edward Miller, Biehl, and Friend 1 withdrew amounts under the $10,000 reporting limit, but the Miller's parents took out the entire lump sum of $156,814.48 on September 22, the watchdog alleges.
Shortly afterwards, Biehl and Friend 1 flew to San Francisco, near Salis' office, and withdrew $2,000 in cash from ATMs, we're told. While they were still in town, Salis deposited $4,900 in cash into his account in various ATM transactions, which the SEC believes was a payoff for the tips.
On October 19, Salis travelled to Indiana to meet up with Douglas Miller. Salis later apparently admitted to SAP investigators that he received $10,000 in cash from his college chum as a thank you for the tips. Salis also, it is claimed, deposited $7,500 in cash and $2,900 in United States Postal Service money orders into his personal account.
"I am through security .... Ps. Half in my bag, half in my pockets ... no problem," Salis emailed Miller from the airport.
The payoffs didn't end there, the SEC alleges: Douglas Miller wrote a $45,000 check and his parents wrote a $35,000 check to EndowCloud, a startup Salis was organizing.
The trade pattern in Concur's stock caused the SEC to launch a probe and alert SAP that something might be wrong. On July 15, 2015, investigators questioned Douglas Miller, who said he had been following Concur independently and only spoke to Salis a few times a year.
On July 29, Salis was interviewed by SAP and denied advanced knowledge of the takeover and said he didn't know of Miller's trades. A few weeks later, he admitted that he'd lied and admitted making trades on Douglas Miller's behalf, the SEC states.
"As the SEC noted, Mr. Salis is a former SAP employee. He left the company in October 2015," SAP told The Reg in a statement.
"SAP cooperated fully with the SEC in this matter and was not itself the target of the investigation. SAP is strongly committed to the highest standards of integrity and ethic and has zero tolerance for any business misconduct. Because this is a pending matter between the former employee and the SEC, SAP will not comment further."
Salis, Douglas Miller, Edward Miller, and Biehl have now been charged with violating Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. Salis and Douglas Miller also allegedly violated Section 14(e) and Rule 14e-3 of the Exchange Act.
"When corporate insiders exploit confidential information to enrich themselves and their friends, they undermine the level playing field that is fundamental to our capital markets," said Scott Friestad, associate director in the SEC's division of enforcement.
"As this and recent cases demonstrate, we are working aggressively to root out and identify insider trading by connecting patterns of trading to sources of material nonpublic information." ®