WASHINGTON—The Securities and Exchange Commission (SEC) has charged two investors with illegally profiting from insider trading in connection with the failed acquisition of Cooper Tire & Rubber Co. by India's Apollo Tyres Ltd.
Amit Kanodia, an entrepreneur and private equity investor based in Brookline, Mass., and Iftkar Ahmed, a Greenwich, Conn.-based venture capitalist and owner of the firm Rakitfi Holdings L.L.C., were named as defendants in a fraud complaint filed April 2 in the Connecticut federal district court.
Rakitfi Holdings and the Lincoln Charitable Foundation, a charity operated by Mr. Kanodia, were named as relief defendants in the lawsuit, the SEC said in a press release.
The SEC seeks full return of the money obtained by the alleged insider trading, with interest, as well as civil monetary penalties. In addition, the U.S. Attorney's Office for the District of Massachusetts announced parallel criminal charges against Messrs. Kanodia and Ahmed.
According to the complaint, Apollo and Cooper were engaged in serious merger negotiations by April 2013. Although the acquisition was never completed, Cooper's stock price jumped 41 percent when the deal was announced in June 2013, the SEC said.
Mr. Kanodia tipped Mr. Ahmed and another friend about the deal before it was announced, the complaint said. Mr. Kanodia learned about the acquisition from his wife, then the general counsel at Apollo, who was intimately involved in the negotiations, the agency said.
Mr. Ahmed began buying up Cooper stock, then sold it for more than $1.1 million when the deal was announced, according to the complaint. Mr. Ahmed later paid Mr. Kanodia a kickback by transferring $220,000 to the Lincoln Charitable Foundation, which the SEC said Mr. Kanodia used to mask the kickback.
The other friend, identified in the lawsuit as “Tippee 1,” also profited from the insider trading and paid Mr. Kanodia a kickback through the Lincoln Charitable Foundation, the complaint said.
Messrs. Kanodia and Ahmed were charged with violating federal antifraud laws and a related SEC anti-fraud rule.
Cooper shareholders voted to approve the merger Sept. 30, 2013, but a series of disputes and lawsuits between Cooper and Apollo caused the formal termination of the merger agreement Dec. 30, 2013.
A group of shareholders since has sued Cooper, alleging that the Findlay, Ohio-based tire maker misrepresented the risks associated with the merger (see page 3). Cooper has petitioned the Delaware federal district court to dismiss the suit.