Deloitte Partner McClellan Insider Trading

Did Deloitte Compromise Independence in McClellan Insider Trading Scandal?
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Francine McKenna Contributor
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12/07/2010 @ 5:45PM
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Did Deloitte Compromise

Independence in McClellan
Insider Trading Scandal?
Comment Now
There are plenty of sexy externalities

associated with the latest insider trading
charges against a former Deloitte tax
partner and his wife. Spicing things up: A
May-December marriage, a XXX-rated
website, and lots of trips between San
Francisco and London to vacation.
Image via Wikipedia
Who woulda thunk its the tax partners

having all the fun?
The McClellan case their UK relatives were arrested in May 2009 and
formally charged by the FSA last month and another one against former
Deloitte Vice Chairman Thomas Flanagan, settled this past August, were on
the SECs desk at the same time. Deloitte has not been charged by the SEC in
either. I doubt they will be. Deloitte played the We were duped card with
the SEC and their clients. They sued Flanagan to save face with both.
Humble cooperation absolves all compliance sins, I suppose.
Arnold McClellan, the latest partner accused of trading on inside
information, left Deloitte this past June. His expertise was tax strategy for
mergers & acquisitions. The acquiring companies cited in the SECs
complaint, Hellman & Friedman (H&F) and McKesson, are Deloitte clients.
McKesson is a Deloitte audit client. Im making an educated guess that H&F
is, too.
Private equity firms are private by nature and often private in the legal
sense, too. As a result, its difficult to determine which professional services
vendors serve them since there are no SEC filings or other public disclosures
until they issue public debt, IPO, or otherwise disclose these facts.
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Why do private private equity firms voluntarily expose themselves to a Big 4

firm audit? They may need a clean audit report for their bankers, they
typically provide audit opinions to investors, and their portfolio companies
Did Deloitte Compromise Independence in McClellan Insider Trading Scandal? - Forbes
may need an audit. Some private equity firms, like Blackstone, are public
companies and are required under SEC rules to have a registered public
accounting firm audit.
LPL Investments, a Hellman & Friedman portfolio company (shared with
private equity firm TPG Capital), IPOd last month. LPLs financial
statements were certified by Deloitte. Their IPO was overshadowed by the
IPO of a big car company, also audited by Deloitte, on the same day. A
spokesman for Hellman & Friedman responded, No comment, when asked
directly if H&Fs external auditor is Deloitte. H&F certainly had an up-close
and personal relationship with Arnold McClellan and his team. He was their
go-to tax and accounting advisor on the deals mentioned in the SECs
complaint.
A spokesman for TPG Capital confirmed that Deloitte has never been their
auditor.
(There was very recent deal where H&F and TPG were on opposite sides of a
transaction. TPG used Deloitte as an advisor for an H&F portfolio company
target. Maybe someone should take a closer look at that trading activity)
McKesson hired Arnold McClellans team to help them acquire Per Se. In an
ironic twist, Deloitte was the auditor of a Per Se predecessor company called
MedaPhis. Deloitte was dismissed in June of 1997 after issuing a going
concern opinion and a restatement of several years financial results that
forced the withdrawal of their audit opinions for 1996 and prior. Medaphis
shareholders also sued Deloitte.
Payback maybe?
In the remaining six deals cited in the McClellan SEC complaint, H&F is
either the named acquiring firm or is implied, in my opinion, by the details
provided. In one those deals, Deloittes client H&F loses their bid for Getty
Images to another Deloitte audit client, Microsoft.
One of the most interesting deals cited in the SEC complaint is for the target
company code named Company A, an auto sales and finance company
based in Indiana. The deal did not go through. My speculation is that this
target was Avis Budget Group, another Deloitte audit client. Deloitte has been
auditor of this company, previously known as Cendant, since 1998. The
complaint says client private equity company assumed to be H&F asked McClellan if there was a conflict that would prevent Deloitte working
on this deal. Deloitte said no problem, even though target and acquirer are
potentially both audit clients of Deloitte.
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All of the largest public accounting firms have ramped up their M&A and
transactions advisory practices in recent years. Deloitte, Ernst &
Young, PricewaterhouseCoopers, and KPMG have investment banking and
broker-dealer subsidiaries. The Sarbanes-Oxley Act prohibits an auditor from
providing, broker or dealer, investment adviser, or investment banking
services, to its public audit clients.

The independence rules around provision of tax services to audit clients are a
little trickier. The auditors lobbyists carved out a pretty generous exemption
in the Sarbanes-Oxley Act for their lucrative tax practices. In general, tax
services are allowed if they are pre-approved by the companys audit
committee.
However, effective April 19, 2006, SEC Release No. 34-53677 and PCAOB
Rule 3522 regarding tax transactions says:
A registered public accounting firm is not independent of its audit client if the firm, or
any affiliate of the firm, during the audit and professional engagement period, provides
any non-audit service to the audit client related to marketing, planning, or opining in
favor of the tax treatment of, a transaction (a)
Confidential Transactions that is a confidential transaction
M&A transactions are, naturally, confidential transactions. My strict

interpretation of the McClellan deals says that Deloitte is not independent of
their client McKesson with regard to their advice on the Per Se transaction. If
Deloitte is the auditor of H&F also, they are not independent of H&F.
McClellan and his Deloitte team were the go-to tax advisors on many of the
H&F acquisitions, including the ones he is accused of trading on using inside
information.
Why should an investor be concerned about Deloitte and McClellans
exploitation of their confidential, trusted advisor, client relationship with
McKesson, H&F, Avis Budget Group, Microsoft, and possibly others? Auditor
independence rules exist to protect shareholders to make sure the audit
comes first.
Its bad enough when a public companys audit may be compromised by the
auditors attention to their relationship and fees from non-audit services such
as in the McKesson case. McKesson classifies, accounting consultations and
due diligence in connection with mergers and acquisitions as AuditRelated Fees. They paid Deloitte 18% of total audit and audit-related fees for
work that includes advice on the tax impact of confidential M&A transactions
during fiscal year 2008. How much of this fee is attributable to the Per Se
deal is not known, but the impact on the auditors fee income is clear.
I cant confirm yet that Deloitte is the H&F external auditor. H&F is a private
private equity firm, so you cant look at the proxy for that information or to
see whether their fees to Deloitte for M&A advice are out of proportion to an
audit fee. However, we can look at another private equity firm comparable to
H&F to review the issues. Blackstone is a public private equity firm and is
audited by Deloitte.
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Blackstone paid Deloitte $28.1 million in fiscal year ending December 31,
2008 for Audit-Related fees that included assurances, merger and
acquisition due diligence services provided in connection with acquisitions
of portfolio companies for investment purposes primarily to certain private
equity and real estate funds managed by Blackstone in its capacity as the
general partner. In addition, the Deloitte Entities provide audit, auditrelated, tax and other services to the portfolio companies, which are
approved directly by the portfolio companys management and are not
included in the amounts presented here.
In contrast, Blackstone spent $18.6 million on their audit in 2008.
In 2009, Blackstones audit fee declined to $14.7 million, but they spent
another $7.6 million with Deloitte for M&A and tax services related to their
acquisitions. Thats 30% of their total audit and audit-related fees.
Its just plain wrong that Deloitte is raking it in on M&A-related tax advice for
both public and, potentially, private audit clients. Thats not supposed to
happen under Sarbanes-Oxley.
And, sure as shootin, that means nobody at Deloitte is keeping a close eye on
possibly problematic partners like Arnold McClellan.
This article is available online at: http://onforb.es/NdfRDH
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Lives With Polished Veneer Are Snared in S.E.C. Inquiry - The New York Times
U.S.
THE BAY CITIZEN
Lives With Polished Veneer Are Snared in

S.E.C. Inquiry
By ELIZABETH LESLY STEVENS
DEC. 11, 2010
In the fall of 2006, Arnold and Annabel McClellan settled into a new school and
social year. The couple sent their younger child to an exclusive Episcopal nursery
school. Their elder took his place at one of the most traditional private schools in San
Francisco.
Ms. McClellan, 38, was finishing up renovations on the familys 5,750square-foot home in the Pacific Heights neighborhood and continuing her charity
work and Bikram yoga. As he had for more than a decade, her husband, 51, spent his
workdays advising clients of Deloitte Tax L.L.P. on mergers and acquisitions.
According to the Securities and Exchange Commission, the couple also began
another venture that fall: an insider-trading scheme that passed secret information
involving Mr. McClellans clients to Ms. McClellans relatives in Europe.
An S.E.C. suit, unveiled Nov. 30, accuses the McClellans, their relatives and
others of netting $23 million from illicit trades from fall 2006 through early 2008.
The transactions involved such blue-chip companies as Microsoft, McKesson and the
Hellman & Friedman investment firm. Deloitte, its clients and the related companies
have not been implicated in the plot.
(Hellman & Friedman was co-founded by F. Warren Hellman, a major financial
backer of The Bay Citizen and chairman of its board.)
Ms. McClellan faces a felony charge of obstructing justice. Mr. McClellan, as yet,
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does not face a criminal charge. As an agency, the S.E.C. charges securities-law
violations only in civil court. Conducting its own investigations, typically with the
Federal Bureau of Investigation, the United States attorneys office files criminal
cases independent of the S.E.C.
Upon her arrest, Ms. McClellan posted $250,000 bail and surrendered her
passport to the authorities. Through their separate lawyers, the McClellans said they
were not guilty.
Damages in the S.E.C. case could exceed $90 million, according to experts in
financial crime. If convicted on the obstruction charge, Annabel McClellan could face
five years in prison.
Since Ms. McClellans criminal charge involves unspecified acts of obstruction of
justice, the United States attorneys office could file a criminal insider-trading case
against either McClellan or both later if there were evidence to justify such a
decision, said Ismail Ramsey, a former federal prosecutor in the white-collar-crime
unit of the United States attorneys office in San Francisco.
Given the chain of events in the McClellan case the S.E.C. complaint, the
obstruction criminal charge and a related criminal investigation in Britain, Mr.
Ramsey said, I suspect this is not the final decision the United States attorney has
made in respect to insider trading charges.
As recently as a month ago, Mr. and Mrs. McClellan were a seemingly
unremarkable, well-heeled and ambitious San Francisco couple. But the S.E.C. case
has peeled back that veneer to reveal a more complicated story of aggressive
entrepreneurship, including Ms. McClellans involvement in a sexually explicit Web
site and mobile phone application that she was developing while she was under
investigation.
Jahan P. Raissi, a former S.E.C. enforcement official now in private practice in
San Francisco, said the McClellan case was notable because of Mr. McClellans
seniority at one of the nations top accounting firms.
It is relatively rare for senior service providers to engage in insider trading,
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Mr. Raissi said. Senior people at law firms, accounting firms and banks generally
dont do things like this because they have more to lose than to gain.
In the couples wide social circle, the McClellans are the talk of the town, said
one woman who has known them for years. For many, what is particularly chilling is
the fear that the investigation is not over and that trading records of others
connected with the couple could come under scrutiny.
In fact, Mr. Raissi said it was common for investigators to look at other traders
in the same ZIP codes, area code and establish connections between traders.
Mr. Ramsey agreed that it was very likely the S.E.C. would look into the
trading activity of those connected to the McClellans. When the S.E.C. investigates
these cases, he said, it starts at the inner circle of the person who has access to
inside information.
Mr. McClellan joined Deloitte in Atlanta in 1995, and was soon transferred to its
London office, with his first wife, a Southerner, in tow. But by 1996 he had a new
wife: Annabel Ludlam, a Briton then in her early 20s, who worked in Deloittes
London office.
By 2001, Deloitte had transferred the McClellans to San Francisco, where they
bought their home for $2.1 million. Soon after, Annabel McClellan left the firm.
As an active stay-at-home mother in San Francisco, Ms. McClellan joined the
executive committee of her childrens private schools parents association and was
co-chairwoman of one of its major fund-raising efforts. Mr. McClellan collected
sports cars and sometimes wore Ferrari-branded clothing to school functions.
The breadth of the insider-trading investigation in the United States and
London was evident by May 2009, when the Financial Services Authority (the
British counterpart to the S.E.C.) barred trading activity of Blue Index Ltd., the
London trading firm of James Sanders, who is married to Miranda Sanders, Annabel
McClellans younger sister. Several arrests were made in London at that time in
connection with the inquiry.
Mr. McClellan was removed from client work at Deloitte in August 2009,
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though he remained a partner until June 2010, a Deloitte spokesman, Jonathan

Gandal, said.
The S.E.C. suit alleges that the couple passed secret information involving Mr.
McClellans clients to the Sanderses, who then passed it on to Blue Index clients and
others. In a recorded telephone conversation described by the S.E.C. in court
documents, James Sanders in March 2007 identified Ms. McClellan as his source of
information and said that she and Mr. Sanders had an agreement to split profits
from trades made by Mr. Sanders. The Financial Services Authority filed criminal
charges against James and Miranda Sanders and others at Blue Index a week before
the S.E.C. announced the case against the McClellans.
In November 2009, 7x7, a glossy San Francisco magazine, noted that Ms.
McClellan was chairwoman of a Dec. 9 benefit at the Yerba Buena Center for the Arts
on behalf of the Edgewood Center for Children and Families, a nonprofit
organization in the city. Ms. McClellans co-chairwomen were her friend Milly
Hanley and a woman who runs a wealth-management practice at a major financial
firm in San Francisco.
At the same time, Ms. McClellan and Ms. Hanley became involved in another
sideline whose sexually explicit nature seemed at odds with their roles as socially
ambitious stay-at-home mothers on the charity circuit. As investigators in the United
States and Britain were closing in on the insider-trading case, Ms. McClellan and Ms.
Hanley started My Nookie, a social-networking business billed as the app your sex
life and social life cant be without.
Through his lawyer, Mr. McClellan disavowed any involvement with My Nookie.
Ms. McClellans lawyer, Nanci Clarence, referred questions to Ms. Hanley.
Ms. Hanley, a self-described simple housewife, said that the venture was an
equal partnership, but that she had taken over recently in light of Ms. McClellans
legal troubles.
When asked how the idea for My Nookie came about, Ms. Hanley replied: We
are housewives. Our kids are older now. We were looking for something to do.
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estevens@ baycitizen.org
A version of this article appears in print on December 12, 2010, on page A41A of the National edition with
the headline: Lives With Polished Veneer Are Snared in S.E.C. Inquiry.
2015 The New York Times Company
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Arnold McClellan and Annabel McClellan
Home > Litigation > Litigation Releases > 2010
U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21758 / November 30, 2010
Securities and Exchange Commission v. Arnold McClellan and Annabel
McClellan, Case No. CV-105412 (JCS) (N.D. Cal. filed November 30, 2010)
SEC CHARGES FORMER DELOITTE PARTNER AND WIFE IN INTERNATIONAL
INSIDER TRADING SCHEME
The Securities and Exchange Commission today charged a former Deloitte Tax LLP
partner and his wife with repeatedly leaking confidential merger and acquisition
information to family members overseas in a multi-million dollar insider trading scheme.
The SEC alleges that Arnold McClellan and his wife Annabel, who live in San Francisco,
provided advance notice of at least seven confidential acquisitions planned by Deloitte's
clients to Annabel's sister and brother-in-law in London. After receiving the illegal tips,
the brother-in-law took financial positions in U.S. companies that were targets of
acquisitions by Arnold McClellan's clients. His subsequent trades were closely timed with
telephone calls between Annabel McClellan and her sister, and with in-person visits with
the McClellans. Their insider trading reaped illegal profits of approximately $3 million in
U.S. dollars, half of which was to be funneled back to Annabel McClellan.
The UK Financial Services Authority (FSA) has announced charges against the two
relatives James and Miranda Sanders of London. The FSA also charged colleagues of
James Sanders whom he tipped with the nonpublic information in the course of his work
at his London-based derivatives firm. Sanders's tippees and clients of his trading firm
made approximately $20 million in U.S. dollars by trading on the inside information.
According to the SEC's complaint, Arnold McClellan had access to highly confidential
information while serving as the head of one of Deloitte's regional mergers and
acquisitions teams. He provided tax and other advice to Deloitte's clients that were
considering corporate acquisitions.
The SEC alleges that between 2006 and 2008, James Sanders used the non-public
information obtained from the McClellans to purchase derivative financial instruments
known as "spread bets" that are pegged to the price of the underlying U.S. stock. The
trading started modestly, with James Sanders buying the equivalent of 1,000 shares of
stock in a company that Arnold McClellan's client was attempting to acquire.
Subsequent deals netted significant trading profits, and eventually James Sanders was
taking large positions and passing along information about Arnold McClellan's deals to
colleagues and clients at his trading firm as well as to his father.
Among the confidential impending transactions allegedly revealed by McClellan:
Kronos Inc., a Massachusetts-based data collection and payroll software company
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acquired by a private equity firm in 2007.

aQuantive Inc., a Seattle-based digital advertising and marketing company
acquired by Microsoft in 2007.
Getty Images Inc., a Seattle-based licenser of photographs and other visual
content acquired by a private equity firm in 2008.
The SEC's complaint alleges the following chronology involving insider trading around
the Kronos transaction:
November 2006: Arnold McClellan begins advising Deloitte client on planned
Kronos acquisition.
Jan. 29, 2007: McClellan signs confidentiality agreement.
Jan. 31, 2007: Following call from Annabel's cell phone, James Sanders begins
buying Kronos spread bets in his wife's account.
March 11, 2007: Arnold McClellan has two-hour cell phone call with client to
discuss acquisition. Less than an hour later, call from same cell phone to
Annabel's family.
March 12-14, 2007: James Sanders increases size of Kronos bets.
March 16, 2007: James Sanders informs another family member that Annabel is
the source of his tips; describes his agreement to split profits with her 50/50.
March 23, 2007: Deloitte client publicly announces Kronos acquisition. Kronos
stock price increases 14 percent; James Sanders and other tippees reap
approximately $4.9 million in U.S. dollars.
The SEC's complaint charges Arnold and Annabel McClellan with violating the antifraud
provisions of the federal securities laws. The complaint seeks permanent injunctive
relief, disgorgement of illicit profits with prejudgment interest, and financial penalties.
The SEC acknowledges the assistance of the UK Financial Services Authority, the U.S.
Attorney's Office for the Northern District of California, and the Federal Bureau of
Investigation during the investigation.
See Also: SEC Complaint
On October 25, 2011, the Court approved a settlement of the Commission's

claims against Annabel McClellan. Without admitting or denying the allegations,
Ms. McClellan agreed to pay a $1 million civil penalty and consented to the entry
of a final judgment that enjoined her from violating Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In a related action,
the Commission requested the dismissal of the insider trading claims against
Arnold McClellan, which the Court subsequently granted with prejudice. For
additional information, see Litigation Release No. 22139 (Oct. 25, 2011).
http://www.sec.gov/litigation/litreleases/2010/lr21758.htm
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Last modified: 03/07/2013
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Case3:10-cv-05412-WHA Document1 Filed11/30/10 Page1 of 27
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DANIEL BOOKIN (S.B. #78996)

dbookin@omm.com
SHARON M. BUNZEL (S.B. #181609)
sbunzel@omm.com
OMELVENY & MYERS LLP
Two Embarcadero Center, 28th Floor
San Francisco, CA 94111-3823
Telephone: (415) 984-8700
Facsimile: (415) 984-8701
Attorneys for Defendant
ARNOLD A. MCCLELLAN
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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
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SAN FRANCISCO DIVISION
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SECURITIES AND EXCHANGE

COMMISSION,
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Plaintiff,
v.
ARNOLD A. MCCLELLAN and
ANNABELLE MCCLELLAN,
Defendants.
Case No. 10-CV-05412-WHA

DEFENDANT ARNOLD A.
MCCLELLANS ANSWER TO
COMPLAINT
Judge:
Date Filed:
Hon. William H. Alsup

November 30, 2010
DEMAND FOR JURY TRIAL
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DEF. ARNOLD MCCLELLANS ANSWER
CASE NO. 10-CV-05412-WHA
Defendant Arnold A. McClellan (Mr. McClellan), for himself and for no
other defendant, hereby answers and otherwise responds to the Securities and
Exchange Commissions (SEC) Complaint as follows. As to any allegation not
specifically admitted, Mr. McClellan denies the allegation.
1.
In answer to Paragraph 1, Mr. McClellan admits that from 1995 until
2010, he was a mergers and acquisitions tax partner at Deloitte Tax LLP
(Deloitte). Except as so admitted, Mr. McClellan denies each and every
allegation set forth in Paragraph 1. To the extent that the allegations in Paragraph 1
are directed to individuals other than Mr. McClellan, Mr. McClellan denies each
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and every allegation in Paragraph 1 on the ground that he is without knowledge or
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information sufficient to form a belief as to the truth thereof.
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2.
In answer to Paragraph 2, Mr. McClellan denies each and every
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allegation in Paragraph 2 on the ground that he is without knowledge or
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3.
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4.
In answer to Paragraph 4, Mr. McClellan admits that he signed a
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confidentiality agreement in connection with a clients effort to acquire Kronos,
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Inc., which purported to be a software company with headquarters in
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Massachusetts, and admits that on March 23, 2007, Kronos announced that it had
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signed a definitive agreement to be acquired. Except as so admitted, Mr. McClellan
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denies each and every allegation in Paragraph 4 on the ground that he is without
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knowledge or information sufficient to form a belief as to the truth thereof.
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5.
In answer to Paragraph 5, Mr. McClellan admits that in May 2007 he
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performed work in connection with a clients planned acquisition of aQuantive,
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Inc., which purported to be a digital advertising and marketing company with
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headquarters in Seattle, Washington, and admits that Microsoft Corporations

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acquisition of aQuantive was announced on May 18, 2007. Except as so admitted,
Mr. McClellan denies each and every allegation in Paragraph 5 on the ground that
he is without knowledge or information sufficient to form a belief as to the truth
thereof.
6.
In answer to Paragraph 6, Mr. McClellan admits that in December
2007 he performed work in connection with a clients planned acquisition of Getty
Images, Inc., and admits that Getty Images announced on February 25, 2008, that it
would be acquired by affiliates of Hellman & Friedman LLC. Except as so
admitted, Mr. McClellan denies each and every allegation in Paragraph 6 on the
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ground that he is without knowledge or information sufficient to form a belief as to
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the truth thereof.
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7.
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8.
allegation in Paragraph 8.
9.
10.
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allegation in Paragraph 10. To the extent that the allegations in Paragraph 10 are
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directed to individuals other than Mr. McClellan, Mr. McClellan denies each and
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every allegation in Paragraph 10 on the ground that he is without knowledge or
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11.

12.

13.
In answer to Paragraph 13, Mr. McClellan admits that he was born in

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1959 and is a resident of San Francisco, California. Mr. McClellan admits that
from 1995 until 2010, he was a mergers and acquisitions tax partner at Deloitte.
Mr. McClellan admits that he worked in Deloittes offices located in San Francisco
and for a period of time served as the head of one of Deloittes regional mergers
and acquisitions teams. Mr. McClellan admits that he is a Certified Public
Accountant licensed in California and Georgia. Except as so admitted, Mr.
McClellan denies each and every allegation in Paragraph 13.
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14.
In answer to Paragraph 14, Mr. McClellan admits that Annabel
McClellan was born in 1972 and is a resident of San Francisco, California, admits
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that he and Annabel McClellan have been married since 1996, and admits, based on
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information and belief, that Annabel McClellan worked during various periods of
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time at Deloittes offices located in London, San Jose, and San Francisco. Except
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as so admitted, Mr. McClellan denies each and every allegation in Paragraph 14 on
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the ground that he is without knowledge or information sufficient to form a belief
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as to the truth thereof.
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15.
In answer to Paragraph 15, Mr. McClellan admits, based on
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information and belief, that James Sanders is married to Miranda Sanders. Except
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as so admitted, Mr. McClellan denies each and every allegation in Paragraph 15 on
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16.
In answer to Paragraph 16, Mr. McClellan admits, based on
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information and belief, that Miranda Sanders is the sister of Annabel Sanders and
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the wife of James Sanders. Except as so admitted, Mr. McClellan denies each and
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18.
19.
In answer to Paragraph 19, Mr. McClellan admits that, prior to its
merger with McKesson Corporation, Per Se Technologies, Inc. purported to be a
healthcare technology company and a Delaware Corporation with headquarters in
Alpharetta, Georgia, and that shares of its common stock were publicly traded on
NASDAQ. Except as so admitted, Mr. McClellan denies each and every allegation
in Paragraph 19 on the ground that he is without knowledge or information
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sufficient to form a belief as to the truth thereof.

20.
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acquisition by affiliates of Hellman & Friedman LLC, Kronos, Inc. purported to
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provide data collection systems, labor management analysis and payroll software,
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and to be a Massachusetts corporation with headquarters in Chelmsford,
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Massachusetts and that shares of its common stock were publicly traded on
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NASDAQ. Except as so admitted, Mr. McClellan denies each and every allegation
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in Paragraph 20 on the ground that he is without knowledge or information
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sufficient to form a belief as to the truth thereof.
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21.
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acquisition by Microsoft Corporation, aQuantive, Inc. purported to be a digital
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advertising and marketing company and a Washington corporation with
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headquarters in Seattle, Washington, and that shares of its common stock were
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publicly traded on NASDAQ. Except as so admitted, Mr. McClellan denies each
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23.
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acquisition by Hellman & Friedman LLC, Getty Images, Inc. purported to purchase
and license photographs and other visual content and to be a Delaware corporation
with headquarters in Seattle, Washington, and that shares of Getty Images common
stock were publicly traded on the New York Stock Exchange. Except as so
admitted, Mr. McClellan denies each and every allegation in Paragraph 24 on the
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the truth thereof.
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25.
In answer to Paragraph 25, Mr. McClellan admits that he was a
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mergers and acquisitions tax partner at Deloitte from 1995 through June 2010. Mr.
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McClellan admits that for a period of time he led a regional mergers and
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acquisitions team. Mr. McClellan admits that he provided clients with certain
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advice, including tax structuring, due diligence, and accounting advice related to
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mergers and acquisitions. Except as so admitted, Mr. McClellan denies each and
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every allegation in Paragraph 25.
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26.
In answer to Paragraph 26, Mr. McClellan admits that he was aware of
20
certain potential transactions regarding Deloittes clients through his position at
21
Deloitte. Except as so admitted, Mr. McClellan denies each and every allegation in
22
Paragraph 26 on the ground that he is without knowledge or information sufficient
23
to form a belief as to the truth thereof.
24
27.
In answer to Paragraph 27, Mr. McClellan admits that Deloitte had
25
certain policies concerning confidential information and trading in certain
26
securities. To the extent that the allegations in Paragraph 27 refer to the contents of
27
those Deloitte policies, those documents speak for themselves and therefore no
28
response from Mr. McClellan is required. Except as so admitted and to the extent
-6-

that a response is deemed necessary, Mr. McClellan denies each and every
28.
securities. To the extent that the allegations in Paragraph 28 refer to the contents of
those Deloitte policies, those documents speak for themselves and therefore no
response from Mr. McClellan is required. Except as so admitted and to the extent
that a response is deemed necessary, Mr. McClellan denies each and every
10
11
12
29.
13
14
securities, that Deloitte entered into certain confidentiality agreements and that, in
15
some instances, Mr. McClellan signed those confidentiality agreements. To the
16
extent that the allegations in Paragraph 29 refer to the contents of those Deloitte
17
policies or those confidentiality agreements, those documents speak for themselves
18
and therefore no response from Mr. McClellan is required. Except as so admitted
19
and to the extent that a response is deemed necessary, Mr. McClellan denies each
20
21
22
23
24
30.

31.
25
allegation in Paragraph 31 relating to Mr. McClellan. Except as so denied, Mr.
26
McClellan denies each and every allegation in Paragraph 31 on the ground that he
27
is without knowledge or information sufficient to form a belief as to the truth
28
thereof.
-7-

32.
33.
34.
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35.
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36.
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37.
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18
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38.
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23
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39.

40.
25
26
27
28
41.

-8-

1
2

42.
43.
8
9
10
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44.

45.
In answer to Paragraph 45, Mr. McClellan admits that James and
12
Miranda Sanders visited San Francisco and stayed in Mr. and Mrs. McClellans
13
home in October 2006. Except as so admitted, Mr. McClellan denies each and
14
15
16
46.
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20
21
47.

48.
In answer to Paragraph 48, Mr. McClellan denies that he disclosed or
22
misappropriated any confidential information as alleged in Paragraph 48. Except as
23
so denied, Mr. McClellan denies each and every allegation in Paragraph 48 on the
24
25
the truth thereof.
26
49.
27
28

-9-

50.
51.
In answer to Paragraph 51, Mr. McClellan admits that James and
Miranda Sanders visited San Francisco and stayed in Mr. and Mrs. McClellans
home in October 2006. Mr. McClellan admits that he provided advice to
McKesson Corporation in connection with its possible acquisition of Per Se
Technologies, Inc. Except as so admitted, Mr. McClellan denies each and every
10
11

52.
In answer to Paragraph 52, Mr. McClellan admits that in 2006 he
12
recorded time in connection with McKesson Corporations planned acquisition of
13
Per Se Technologies, Inc. Except as so admitted, Mr. McClellan denies each and
14
15
16
53.
17
18
19
54.
In answer to Paragraph 54, Mr. McClellan admits that he was aware at
20
some point in time that McKesson Corporation was seeking to acquire Per Se
21
Technologies, Inc. Except as so admitted, Mr. McClellan denies each and every
22
23
24
55.
In answer to Paragraph 55, Mr. McClellan admits that during October
25
2006, he and members of Deloittes tax mergers and acquisitions group met with
26
representatives of Per Se Technologies, Inc. in Atlanta, Georgia.
27
28
56.
In answer to Paragraph 56, Mr. McClellan admits that on October 27,
2006, he received an email that stated the deal is a go. Except as so admitted, Mr.
- 10 -

thereof.
4
5
6
57.

58.
10
the truth thereof.
11
59.
12
13
14
60.
15
16
17
61.
18
19
20
62.
In answer to Paragraph 62, Mr. McClellan admits that, on November
21
6, 2006, McKesson announced its acquisition of Per Se Technologies, Inc. at $28
22
per share, and that shares of Per Se Technologies stock closed at $27.55 per share,
23
up approximately 13 percent from its prior day close of $24.45 per share. Except as
24
so admitted, Mr. McClellan denies each and every allegation in Paragraph 62 on the
25
26
the truth thereof.
27
63.
28

- 11 -

1
2

64.
In answer to Paragraph 64, Mr. McClellan admits that he advised
Hellman & Friedman LLC with respect to due diligence and tax structuring in
connection with its possible acquisition of Kronos, Inc. and that he recorded time
on the Kronos matter in November 2006. Mr. McClellan admits that he signed an
amendment to a confidentiality agreement between Hellman & Friedman LLC and
Kronos. To the extent that the allegations in Paragraph 64 refer to the contents of a
confidentiality agreement or amendment thereto, those documents speak for
themselves and therefore no response from Mr. McClellan is required. Except as so
10
admitted, and to the extent any response is required, Mr. McClellan denies each and
11
12
13
65.
14
15
16
66.
17
some point in time that Hellman & Friedman LLC was seeking to acquire Kronos,
18
Inc. Except as so admitted, Mr. McClellan denies each and every allegation in
19
20
21
22
23
67.

68.
24
25
26
27
the truth thereof.
28
69.

- 12 -

70.
71.
In answer to Paragraph 71, Mr. McClellan admits that in or about
February 2007, he stayed overnight at the Sanders home in London while returning
from a business trip to Rome. Except as so admitted, Mr. McClellan denies each
10
11

72.
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13
14
73.
15
16
17
74.
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19
20
75.
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23
76.
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25
26
77.
27
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78.
79.
80.
In answer to Paragraph 80, Mr. McClellan admits that on March 23,
2007, Hellman & Friedman LLC and Kronos, Inc. announced the acquisition at $55
per share, that shares of Kronos stock closed at $53.11 per share, up approximately
10
14 percent from its prior day close of $46.63 per share. Except as so admitted, Mr.
11
12
13
thereof.
14
81.
15
16
17
82.
In answer to Paragraph 82, Mr. McClellan admits receiving an email
18
dated May 14, 2007 from a representative of a Deloitte client. To the extent that
19
the allegations in Paragraph 82 refer to that email, the document speaks for itself
20
and therefore no response from Mr. McClellan is required. Except as so admitted
21
and to the extent any response is required, Mr. McClellan denies each and every
22
23
24
83.
25
some point in time that a Deloitte client was seeking to acquire aQuantive, Inc.
26
Except as so admitted, Mr. McClellan denies each and every allegation in
27
28

- 14 -

84.
4
5
6
85.

86.
10
the truth thereof.
11
87.
12
13
14
88.
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17
89.
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19
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90.
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22
23
91.
In answer to Paragraph 91, Mr. McClellan admits that on May 18,
24
2007, Microsoft Corporation announced the acquisition of aQuantive, Inc. at $66.50
25
per share, approximately 85 percent more than the prior days closing price, and
26
that shares of aQuantive closed at $63.79 per share, up approximately 78 percent
27
from its prior day close of $35.87 per share. Except as so admitted, Mr. McClellan
28
denies each and every allegation in Paragraph 91 on the ground that he is without
- 15 -

1
2

92.
93.
In answer to Paragraph 93, Mr. McClellan admits that he and Annabel
McClellan traveled to London in or about July and August 2007, and visited
Annabel McClellans relatives, including the Sanderses. Except as so admitted,
Mr. McClellan denies each and every allegation in Paragraph 93 on the ground that
he is without knowledge or information sufficient to form a belief as to the truth
10
11
thereof.
94.
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13
14
95.
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16
17
96.
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19
20
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22
97.

98.
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the truth thereof.
27
99.
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1
2

100. In answer to Paragraph 100, Mr. McClellan denies each and every
8
9
10
11
103. In answer to Paragraph 103, Mr. McClellan admits that in or about
12
July and August 2007, he traveled to and from London. Except as so admitted, Mr.
13
14
15
thereof.
16
104. In answer to Paragraph 104, Mr. McClellan denies that he engaged in
17
any pattern of tipping and trading. Except as so denied, Mr. McClellan denies
18
each and every allegation in Paragraph 104 on the ground that he is without
19
20
21
22
23
24
25
26
27
28

- 17 -

4
5
6
110. In answer to Paragraph 110, Mr. McClellan denies that he disclosed or
misappropriated any confidential information as alleged in Paragraph 110. Except
as so denied, Mr. McClellan denies each and every allegation in Paragraph 110 on
10
11

12
13
14
15
16
17
18
19
20
114. In answer to Paragraph 114, Mr. McClellan admits that he recorded
21
time in connection with a clients potential acquisition of Getty Images, Inc. in
22
2007, and during the course of his work for that client he participated on conference
23
calls, worked on due diligence and helped prepare reports. Except as so admitted,
24
Mr. McClellan denies each and every allegation in Paragraph 114 on the ground
25
that he is without knowledge or information sufficient to form a belief as to the
26
truth thereof.
27
28
115. In answer to Paragraph 115, Mr. McClellan admits that he was aware
at some point in time that a Deloitte client sought to acquire Getty Images, Inc.
- 18 -

7
8
9
118. In answer to Paragraph 118, Mr. McClellan denies that he disclosed or
10
misappropriated any confidential information as alleged in Paragraph 118. Except
11
as so denied, Mr. McClellan denies each and every allegation in Paragraph 118 on
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
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- 19 -

10
127. In answer to Paragraph 127, Mr. McClellan admits that on February
11
25, 2008 Hellman & Friedman LLC announced its acquisition of Getty Images,
12
Inc., and that on February 28, 2008 shares of Getty Images stock closed at $31.67
13
per share, up approximately 30 percent from its prior day close of $24.45 per share.
14
15
16
17
128. In answer to Paragraph 128, Mr. McClellan incorporates by reference
18
his responses to the allegations in paragraphs 1 through 127 as if fully set forth
19
herein.
20
21
22
130. In answer to Paragraph 130, Mr. McClellan denies that he obtained
23
material nonpublic information in breach of his duties of confidentiality and trust as
24
alleged in Paragraph 130. Except as so denied, Mr. McClellan denies each and
25
26
27
28
- 20 -

thereof.
thereof.
10
11
12
13
thereof.
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15
16
17
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thereof.
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PRAYER FOR RELIEF

Mr. McClellan denies that the SEC is entitled to any of the relief sought in
subsections I-IV.
AFFIRMATIVE DEFENSES
23
Mr. McClellan asserts the following affirmative defenses. To the extent any
24
of the defenses, in whole or in part, serve merely to negate an element of the SECs
25
cause of action, Mr. McClellan in no way seeks to relieve the SEC of its burden of
26
proof or persuasion on that element. Mr. McClellan hereby reserves the right to
27
assert additional defenses not asserted herein, as investigation and discovery may
28
reveal the existence of additional defenses not currently known to him. Mr.
- 21 -

McClellan further reserves all affirmative defenses available under federal law and
any applicable state law.
FIRST AFFIRMATIVE DEFENSE

The Complaint fails to state a claim upon which relief can be granted.
4
5
SECOND AFFIRMATIVE DEFENSE

The Court lacks jurisdiction over the alleged claims.
6
7
THIRD AFFIRMATIVE DEFENSE

The SEC is not entitled to the relief it seeks.
8
9
FOURTH AFFIRMATIVE DEFENSE
10
The Complaint fails to plead with particularity the required elements of
11
fraud.
12
FIFTH AFFIRMATIVE DEFENSE
13
Any recovery on the SECs Complaint, or any purported cause of action
14
alleged therein, is barred because Mr. McClellans disputed conduct was privileged
15
and/or justified.
16
17
SIXTH AFFIRMATIVE DEFENSE

Mr. McClellan is not liable for the SECs claim because he acted at all times
18
in good faith, with reasonable care, and/or with due diligence in carrying out his
19
responsibilities and duties, and did not directly or indirectly induce any acts that
20
could constitute a cause of action. He did not know, and in the exercise of
21
reasonable care could not have known, of any facts by which liability could be
22
alleged to exist.
23
SEVENTH AFFIRMATIVE DEFENSE
24
Mr. McClellan asserts that he is not liable for any harm or violation alleged
25
in the Complaint because he acted at all time in good faith and in conformity with
26
the rules, regulations, orders, and/or interpretations of the SEC applicable at the
27
relevant time.
28
- 22 -

EIGHTH AFFIRMATIVE DEFENSE
1
2
3
The SECs claim is barred, in whole or in part, by the applicable statute of

limitations.
NINTH AFFIRMATIVE DEFENSE
4
5
The SECs claim is barred, in whole or in part, under such equitable
doctrines as the evidence demonstrates and as are permissible to be asserted against
the SEC.
TENTH AFFIRMATIVE DEFENSE
8
9
10
Mr. McClellan is not responsible for acts or omissions allegedly committed

by others.
PRAYER
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12
13
14
15
16
17
18
19
20
21
WHEREFORE, Defendant Arnold A. McClellan prays that judgment in his

favor be entered as follows:
1.
That the Complaint, and each and every purported claim for relief
contained therein, be dismissed with prejudice;

2.
That the SEC take nothing by reason of its Complaint and that
judgment be rendered in favor of Mr. McClellan;

3.
That Mr. McClellan be granted such other and further relief as the
Court deems just and proper.

Dated:
April 20, 2011
DANIEL BOOKIN
SHARON M. BUNZEL
22
23
24
25
By:
/s/ Daniel Bookin

Daniel Bookin
Arnold A. McClellan
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27
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- 23 -

DEMAND FOR JURY TRIAL
1
2
3
4
Pursuant to Rule 38(b) of the Federal Rules of Civil Procedure, Defendant

Arnold A. McClellan requests a trial by jury on all issues so triable.
Dated:
April 20, 2011
DANIEL BOOKIN
SHARON M. BUNZEL
6
7
By:
/s/ Daniel Bookin

Daniel Bookin
Arnold A. McClellan
8
9
10
11
SF1:819430.4
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- 24 -

1
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8
9
MARC J. FAGEL (Cal. Bar No. 154425)

MICHAEL S. DICKE (Cal. Bar No. 158187)
ROBERT TASHJIAN (Cal. Bar No. 191007)
tashjianr@sec.gov
LLOYD FARNHAM (Cal. Bar No. 202231)
farnhaml@sec.gov
VICTOR W. HONG (Cal. Bar No. 165938)
hongv@sec.gov
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
44 Montgomery Street, 26th Floor
San Francisco, California 94104
Telephone: (415) 705-2500
Facsimile: (415) 705-2501
10
11
12
13
14
15
SECURITIES AND EXCHANGE COMMISSION,
Case No. 10-CV-05412 WHA
Plaintiff,
16
v.
17
18
19
FINAL JUDGMENT AS TO
DEFENDANT ANNABEL
MCCLELLAN
ARNOLD A. MCCLELLAN and

ANNABEL MCCLELLAN
Defendants.
20
21
The Securities and Exchange Commission having filed a Complaint and Defendant
22
Annabel McClellan having entered a general appearance; consented to the Courts jurisdiction
23
over Defendant and the subject matter of this action; consented to entry of this Final Judgment
24
without admitting or denying the allegations of the Complaint (except as to jurisdiction); waived
25
findings of fact and conclusions of law; and waived any right to appeal from this Final Judgment:
26
I.
27
28
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that Defendant Annabel

McClellan and Defendants agents, servants, employees, attorneys, and all persons in active
SEC V. MCCLELLAN, ET AL.
CASE NO. 10-CV-05412 WHA
DEFENDANT ANNABEL MCCLELLAN
concert or participation with them who receive actual notice of this Final Judgment by personal
service or otherwise are permanently restrained and enjoined from violating, directly or
indirectly, Section 10(b) of the Securities Exchange Act of 1934 (the Exchange Act) [15
U.S.C. 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. 240.10b-5], by using any
means or instrumentality of interstate commerce, or of the mails, or of any facility of any
national securities exchange, in connection with the purchase or sale of any security:
(a)
to employ any device, scheme, or artifice to defraud;
(b)
to make any untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading; or
10
11
12
(c)
to engage in any act, practice, or course of business which operates or would

operate as a fraud or deceit upon any person.
II.
13
14
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant shall pay a
15
civil penalty in the amount of $1,000,000 pursuant to Section 21A of the Exchange Act [15
16
U.S.C. 78u-1]. Defendant shall make this payment pursuant to the terms of the payment
17
schedule set forth in paragraph III below. The civil penalty amount shall be reduced by any
18
criminal fine paid by the Defendant in the criminal action United States v. Annabel McClellan,
19
Case No. CR-10-0860 WHA (N.D. Cal., filed Nov. 24, 2010). Defendant shall make payments
20
by certified check, bank cashiers check, or United States postal money order payable to the
21
Securities and Exchange Commission. The payment shall be delivered or mailed to the Office of
22
Financial Management, Securities and Exchange Commission, 100 F Street, NE, Stop 6042,
23
Washington DC 20549, and shall be accompanied by a letter identifying Annabel McClellan as a
24
defendant in this action; setting forth the title and civil action number of this action and the name
25
of this Court; and specifying that payment is made pursuant to this Final Judgment. Defendant
26
shall pay post-judgment interest on any delinquent amounts pursuant to 28 USC 1961. The
27
Commission shall remit the funds paid pursuant to this paragraph to the United States Treasury.
28
III.
1
2
Defendant Annabel McClellan shall pay $1,000,000 in three installments according to
the following schedule: (1) $250,000, paid within 10 days of entry of this Final Judgment;
(2) $250,000, paid within 180 days of entry of this Final Judgment; and (3) $500,000, paid
within 360 days of entry of this Final Judgment. The civil penalty amount shall be reduced by
the amount of any criminal fine paid by the Defendant in the criminal action U.S. v. Annabel
McClellan, Case No. 10- CR-0860 WHA (N.D. Cal., filed Nov. 24, 2010), and any such
reduction shall be applied to any installment due after payment of the criminal fine.
If Annabel McClellan fails to make any payment by the date agreed or in the amount
10
agreed according to the schedule set forth above, all outstanding payments under this Final
11
Judgment, including post-judgment interest, minus any payments made, shall become due and
12
payable immediately without further application to the Court.
13
IV.
14
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that the Consent is
15
incorporated herein with the same force and effect as if fully set forth herein, and that Defendant
16
shall comply with all of the undertakings and agreements set forth therein.
V.
17
18
19
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that this Court shall retain
jurisdiction of this matter for the purposes of enforcing the terms of this Final Judgment.
VI.
20
21
There being no just reason for delay, pursuant to Rule 54(b) of the Federal Rules of Civil
22
Procedure, the Clerk is ordered to enter this Final Judgment forthwith and without further notice.
23
The Court will retain jurisdiction for three years.
24
25
26
Dated: October 24, 2011.

Dated: October 24, 2011.
27
___________________________________
William Alsup
William Honorable
Alsup
United
StatesDISTRICT
District Judge
UNITED
STATES
JUDGE
William Alsup
Alsu
UNITED STATES DISTRICT JUDGE
28
Approved as to form:
2
3
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5
6
7
8
9
10
11
12
/s/ Nanci Clarence

Nanci Clarence
Nicole Howell Neubert
CLARENCE & DYER LLP
899 Ellis Street
San Francisco, CA 94109
Tel.: (415) 749-1800
ANNABEL McCLELLAN
Submitted by:
/s/ Robert L. Tashjian
Robert L. Tashjian
SECURITIES AND EXCHANGE COMMISSION
44 Montgomery Street, Suite 2600
Tel.: (415) 705-2500
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Case3:10-cr-00860-WHA Document1 Filed11/24/10 Page1 of 4
MELINDA HAAG (CABN 132612)

United States Attorney
2
3
4
5
6
7
MIRANDA KANE (CABN 150630)

Chief, Criminal Division
ADAM A. REEVES (NYBN 2363877)
Assistant United States Attorney
450 Golden Gate Avenue, 11th Floor
Telephone: (415) 436-7157
Facsimile: (415) 436-7234
E-mail: Adam.Reeves@usdoj.gov
8
Attorneys for Plaintiff
9
10
11
12
UNITED STATES OF AMERICA,
13
Plaintiff,
14
v.
15
ANNABEL McCLELLAN,
16
Defendant.
17
18
19
20
21
)
)
)
)
)
)
)
)
)
)
No. CR 10-0860 (WHA)

UNITED STATES
SENTENCING MEMORANDUM
Date: November 8, 2011
Time: 2:00 p.m.
Court: Hon. William H. Alsup
INTRODUCTION
The United States respectfully submits this Sentencing Memorandum pursuant to
Federal Rule of Criminal Procedure 32 and Criminal Local Rule 32-5.
On April 5, 2011, the defendant, Annabel McClellan, pled guilty to the only count
22
of the Indictment charging her with obstruction in violation of 18 U.S.C. 1505. The
23
defendant entered the plea of guilty pursuant to Fed. R. Crim. P. 11(c)(1)(C) and the
24
terms of a written plea agreement executed by the parties.
25
26
At the November 8, 2011 hearing, the Court, having already received the October
25, 2011 Presentence Report (PSR), may accept or reject the plea agreement in
27
28
UNITED STATES SENTENCING MEMORANDUM,

United States v. McClellan, Case No. CR 10-0860 (W HA)
accordance with Fed. R. Crim. P. 11(c)(3)(A). If it rejects the plea agreement, the Court
should so inform the parties, allow the defendant an opportunity to withdraw her plea and
otherwise comply with Fed. R. Crim. P. 11(c)(5). If it accepts the plea agreement, the
Court should include in the judgment the disposition agreed upon by the parties in the
plea agreement and otherwise comply with Fed. R. Crim. P. 11(c)(4). Applying the
relevant Sentencing Guidelines to this case, the United States agrees with the Department
of Probation that defendants total offense level is 12, that her criminal history category is
I, and that her Guidelines range is 10-16 months imprisonment. PSR at 6 and 13.
For the reasons set forth below, the United States respectfully requests that the
10
Court accept the plea agreement and sentence Annabel McClellan to fourteen (14) months
11
in prison; a three year term of supervised release; and a special assessment of $100.
12
Pursuant to the terms of the plea agreement, the sentence of imprisonment must be served
13
in prison and therefore may not include community confinement or home detention
14
pursuant to U.S.S.G. 5C1.1. April 5, 2011 Plea Agreement at 8(a) (the sentence to
15
which the parties have agreed ... is as follows (a) a sentence of imprisonment of at least
16
ten (10) months in prison and not more than sixteen (16) months in prison)(emphasis
17
added). Because the defendant has been ordered to pay a $1 million penalty in the
18
parallel civil enforcement action, Securities and Exchange Commission v. Annabel
19
McClellan, Case No. 10-CV-05412 WHA, the United States does not seek any fine in this
20
case. Because the victims or persons directly and proximately harmed by the
21
defendants criminal conduct cannot be readily identified, the United States does not seek
22
restitution in this case. 18 U.S.C. 3663.
23
24
SUMMARY OF THE OFFENSE CONDUCT

The defendant, Annabel McClellan, participated in an insider trading scheme with
25
her sister, Miranda Sanders, and brother-in-law, James Sanders, who both lived in
26
London, United Kingdom. James Sanders was involved in a trading business in London.
27
28

-2-
Annabel McClellan provided James Sanders with the names of target companies involved
in the corporate transactions on which her husband, Arnold McClellan, was working.
James Sanders used the confidential information to make so-called spread bets in the
London markets relating to the performance of the United States securities involved in
Arnold McClellans corporate transactions.
Arnold McClellan, who resided with the defendant in San Francisco, possessed
material, non-public information about corporate transactions involving publicly-traded
companies by virtue of his work advising private equity firms and other clients of his
business. At home, Annabel McClellan overheard her husband discuss confidential
10
details of the corporate transactions on which he was working. In this manner, she was
11
able to get confidential information about publicly-traded companies in the United States
12
that was valuable because it was material to the price of the securities involved and non-
13
public because the information was not yet known to the investing public.
14
Beginning in or around January 2007, knowing that it was illegal and wrong to do
15
so, Annabel McClellan began to convey confidential information to James Sanders about
16
deals on which her husband was working. She did so with the intent that James Sanders
17
would trade securities on the basis of the material, non-public information that she gave
18
him. Among other confidential information, the defendant told James Sanders the names
19
of public companies that her husbands clients were negotiating to acquire and details
20
about whether or not she thought specific deals were going forward. Often, she conveyed
21
whether or not a deal was going forward by initially identifying the name of the
22
acquisition target and later telling James Sanders and Miranda Sanders whether or not her
23
husband was still busy on the deal.
24
25
Kronos (KRON) and Getty Images (GYN) were two of the public companies about
which Annabel McClellan provided material, non-public information to James and
26
27
28

-3-
Miranda Sanders. James Sanders made approximately 552,967 (UK pounds) on Kronos
and approximately 396,851 (UK pounds) on Getty Images.
Beginning in or about October 2009, Annabel McClellan obstructed an
investigation by the United States Securities and Exchange Commission (SEC) into the
insider trading scheme involving the defendant, Miranda and James Sanders. In
particular, Annabel McClellan lied under oath to the SEC by (1) falsely denying that she
did not get any confidential information from her husband, Arnold McClellan; (2) falsely
denying that she learned about the companies her husbands clients wanted to acquire
before the acquisitions were publicly announced; (3) falsely denying that she ever talked
10
to James Sanders about Kronos; and (4) falsely denying that she had ever talked to James
11
Sanders about Getty Images.
12
13
The United States estimates that the defendants wrongdoing defrauded investors
in the United Kingdom of approximately 1.54 million or about $3.05 million.
GUIDELINES CALCULATION
14
15
16
The United States agrees with the Department of Probations calculation of the
Guidelines as:
17
a.
Base Offense Level, U.S.S.G. 2J1.2:
18
b.
Acceptance of Responsibility,
U.S.S.G. 3E1.1(a):
19
20
c.
Adjusted offense level
14
-2
__
12
21
PSR 5-6. The defendants criminal history category is I, resulting in a Guidelines range
22
of 10 to 16 months imprisonment. PSR at 13.
23
24
CONTESTED SENTENCING ISSUES

If the Court accepts the plea agreement, the United States anticipates no contested
25
issues relating to the defendants sentencing beyond argument about what sentence within
26
the limits agreed to by the parties is appropriate in this case. Crim. L. R. 32-5(b).
27
28

-4-
SENTENCING RECOMMENDATION
1
2
A.
By her own admission, Annabel McClellan betrayed her husband for years in a
duplicitous and destructive manner; she stole highly confidential, material, non-public
information; she tipped her sister and brother-in-law in order to illegally benefit her
family; and she lied repeatedly about it under oath to the SEC. This was not a one-time
lapse of judgment. The defendant undertook a carefully planned and executed criminal
scheme that required a superb, internationally-coordinated investigation by the SEC and
the Financial Services Authority (FSA) in London to detect.
10
18 U.S.C. 3553(a) Factors
By any measure, the nature and circumstances of this offense are so serious that
11
only a sentence of incarceration can act as a meaningfully deterrent. As a general matter,
12
courts have recognized that white collar crime . . . requires heavy sentences to deter
13
because it is potentially very lucrative. United States v. Hauptman, 111 F.3d 48, 52 (7th
14
Cir. 1997) (emphasis added). Because economic and fraud-based crimes are more
15
rational, cool, and calculated than sudden crimes of passion or opportunity, these crimes
16
are prime candidates for general deterrence. United States v. Martin, 455 F.3d 1227,
17
1240 (11th Cir. 2006) (internal quotation omitted). Defendants in white collar crimes
18
often calculate the financial gain and risk of loss, and white collar crime therefore can be
19
affected and reduced with serious punishment. Id. at 1240.
20
B.
Other Relevant Factors
21
Countervailing considerations weigh against seeking a prison sentence of greater
22
than 14 months, however. First, the defendant is a mother of two young children. The
23
duration of any prison sentence should balance their needs with the need for deterrence
24
and punishment.
25
26
Second, the defendant, once charged, decided to cooperate with the governments
investigation in a timely manner. Among other things, Annabel McClellan voluntarily
27
28

-5-
agreed to a limited waiver of the marital privilege. With that waiver in place, Annabel
McClellan and her counsel met with a total of eight (8) representatives of the government
(two FSA investigators; three SEC attorneys; two federal prosecutors; and one FBI
Special Agent) and answered every question put to her over the course of a three-day
interview. Given the need to understand the relationship between Annabel McClellan and
her husband, some of the questions were personal in nature and difficult for the defendant
to address. To her credit, she did. And in so doing, Annabel McClellan, by her
cooperation, allowed the government to directly investigate the marital dimension of this
case in a manner that would otherwise have been foreclosed.
10
Based on these other factors, the United States reduced its sentencing
11
recommendation by two months from the maximum sentence of sixteen (16) month in
12
prison agreed to as permissible by the parties.

CONCLUSION
13
14
Taking into account all of the factors cited in Section 3553(a), the United States
15
recommends that the Court impose a sentence of 14 months in prison and a three-year
16
term of supervised release. This sentence appropriately reflects the severity of the
17
defendants criminal conduct as well as the need for both general and specific deterrence.
18
The government submits that a lower sentence would not adequately reflect the
19
seriousness of the defendants crime or promote respect for the law.
20
DATED: October 28, 2011
21
Respectfully submitted,
MELINDA HAAG
United States Attorney
22
23
24
/s/
__________________________
ADAM A. REEVES
Assistant United States Attorney
25
26
27
28

-6-

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DANIEL BOOKIN (S.B. #78996)

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

SECURITIES AND EXCHANGE

Case No. 10-CV-05412-WHA

Hon. William H. Alsup

DEMAND FOR JURY TRIAL

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