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NEW YORK_The Securities and Exchange Commission on Tuesday charged a securities salesman and a portfolio manager with insider trading in the first such case involving credit default swaps.

The SEC alleges that Jon-Paul Rorech, a salesman at Deutsche Bank Securities Inc., tipped off Renato Negrin, a former portfolio manager at hedge fund investment adviser Millennium Partners LP, about a possible change in terms of a bond being issued by VNU NV, a Dutch publishing company that owns Nielsen Media and other media businesses, in 2006. Deutsche Bank was acting as the lead underwriter of the VNU bond issuance.

With knowledge of the potential change in bond terms, Negrin purchased credit default swaps on VNU for a Millennium hedge fund, according to the SEC complaint. After news of the bond terms was released, Negrin sold the swaps at a profit of $1.2 million, according to the SEC.

Credit default swaps are an insurance-like contract that protects a buyer from potential losses that might be incurred on an underlying financial investment, such as a corporate bond or mortgage-backed security. Many of those types of underlying investments have lost much of their value or increasingly defaulted amid the credit crisis.


If the underlying financial investment is not repaid, the buyer of the swap is covered in full for the losses through the swap.

Credit default swaps have been widely seen as one of the major factors in the credit crisis. The trading of swaps helped push Lehman Brothers Holdings Inc. into bankruptcy protection and American International Group Inc. the to brink of failure before being bailed out by the government.

Robert Strassberg, a lawyer representing Rorech, said in a statement that his client acted "consistently with the accepted practice in the industry." Strassberg said Rorech did not violate any securities laws tied to the sale of the VNU bonds.

A lawyer for Negrin was not immediately available to comment on the case.

The SEC is asking for the judge to force the two to repay the money gained from the transaction, plus penalties and back interest on the allegedly ill-gotten gains.

The SEC's hedge fund working group handled the investigation. The group has brought more than 100 cases alleging fraud and manipulation by hedge funds over the past five years, including more than 20 in 2009.