SEC Partially Settles “Portfolio Manager” Insider Trading Case

The SEC partially settled what is perhaps one of its more unusual insider trading cases. It involved defendants who posed as portfolio managers who then induced investment bankers to entrust them which inside information that was then used to trade. SEC v. Fishoff (D.N.J. Filed June 3, 2015).

The defendants in the action are Steven Fishoff, Paul Petrello, Ronald Cohernin and Steven Constantin along with entities controlled by the individual defendants engaged in an insider trading scheme. Specifically, the complaint alleges that Mr. Fishoff, and the other individual defendants posed as portfolio managers and induced investment bankers to bring them “over the wall” and share confidential information regarding pending secondary offerings. In each instance there were assurances that the information would remain confidential. In breach of their duty, the defendants traded on the information, shorting the shares. The scheme also included trading in advance of certain positive corporate news announcements regarding confidential negotiations between two large pharmaceutical companies. Overall the defendants had in excess of $4.4 million in profits. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 105.

Mr. Petrello consented, and the court entered, a permanent injunction prohibiting him and two related entities from future violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 105. It also precluded Mr. Petrello and the two entities from participating in secondary securities offerings in a certain manner. Questions regarding disgorgement and penalties were not resolved. The action remains pending against the other defendants.

The U.S. Attorney for New Jersey filed parallel criminal charges. Earlier this month Mr. Petrello pleaded guilty in that action. See Lit. Rel. No. 23474 (February 24, 2016).

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