Dentist, Claiming Tip Was a Rumor, Wins Insider Trading Case
A jury found Jessie Roberts, a Louisiana dentist who claimed what the government called an illegal tip was just a rumor, not guilty of insider trading. U.S. v. Roberts, No. 15-ct-00020 (M.D. La. Filed Feb19, 2015). The case centered on trading in advance of the acquisition of the Shaw Group, Inc. by Chicago Bridge & Iron, announced on August 30, 2012. The two count indictment contained one count of conspiracy to commit securities fraud and one count of securities fraud.
The underlying facts are sketched in the parallel action brought by the Commission. SEC v. Zeringue, Civil Action No 3:15-cv-00405 (W.D. La. Filed Feb. 19, 2015). That action named as defendants Scott Zeringue and Jessie Roberts. Mr. Zeringue was a the vice president of construction operations at Shaw Group, Inc., an energy construction company. Mr. Roberts is his brother-in-law.
Prior to the deal announcement Mr. Zeringue learned of the then pending transaction through his employment. He purchased 125 shares of Shaw, told his brother-in-law about the deal and asked him to purchase additional shares for him. Mr. Roberts made purchases and tipped Friend A and a relative of that person. Both traded. Overall Mr. Roberts had trading profits of $765,000 while the other traders profits totaled $154,000. Mr. Roberts paid his brother-in-law $30,000 for the tip. The action alleged violations of Exchange Act Section 10(b). Mr. Zeringue pleaded guilty in the parallel criminal action and settled with the Commission.
Mr. Roberts, however, went to trial. Following seven hours of deliberations the jury returned verdicts of not guilty on each count. The defense claimed that Mr. Roberts relied on his research but not a rumor of a transaction he received from his brother-in-law, according to a report by Law 360 (Aug. 15, 2017). While Mr. Roberts chose not to testify, his version of the trading transactions was put in evidence by the FBI to whom he had given statements.
Mr. Robert’s claim about rumors regarding the transaction appears to draw support from the other insider trading cases that swirled around the Shaw transaction. For example, SEC v. Trahan, Civil Action No. 17-cv-731 (W.D. LA. Filed June 6, 2017), is another action based on the deal. It named as defendants Michael Trahan, the owner of engineering consulting company Petra Consultants, Inc. Mr. Trahan was a consultant to Shaw. During his engagement, and before the July 30, 2012 announcement date, an employee of the firm told him about the merger. Mr. Trahan purchased 5,600 shares of Shaw common stock which he sold after the deal announcement for a profit of $69,735.00. The complaint alleged violations of Exchange Act Section 10(b). To resolve the case Mr. Trahan consented to the entry of a permanent injunction prohibiting future violations of Section 10(b). In addition, he agreed to pay disgorgement of $69,735.00, prejudgment interest and a penalty equal to his trading profits.
SEC v. Ho, Civil Action No. 6:17-cv-00895 (W.D. La. Filed July 11, 2017) is another action based on the Shaw deal. In this action Victory Ho, a self-employed convenience store operator, was named as a defendant. On July 27, 2012, the last trading day before the deal announcement, Mr. Ho used all the cash in his brokerage account to purchase 296 out of the money Shaw call options. On July 17, 2012, the day before opening two brokerage accounts at different firms, Mr. Ho’s sister had what the complaint called a significant number of calls and texts with a friend employed at Shaw who had inside information. In the hour prior to opening the account, Mr. Ho had seven texts or calls with his sister. On July 26 Mr. Ho’s sister and the Shaw employee exchanged additional calls and texts. Those were interspersed with texts and calls by Mr. Ho’s sister to him. During the staff investigation Mr. Ho invoked his Fifth Amendment privilege. The complaint alleges violations of Exchange Act Section 10(b). The case is pending.
Yet another case is SEC v. Wagner, Civil Action No. 8:14-cv-01036(W.D. Md. Filed April 3, 2014). This action named as defendants Walter Wagner and Alexander Osborn. Prior to the deal date John Femenia, a personal friend of Mr. Wanger, was employed in the investment banking division of Wells Fargo Securities, LLC. Through that position he learned about the transaction and gifted the information to his friend who had lost his job. Mr. Wagner shared the information with his friend, Alexander Osborn. Both traded in the securities of the Shaw Companies and, following the deal announcement, had profits of, respectively, $517,784 and $439,830. The Commission’s complaint alleged violations of Exchange Act Section 10(b). Mr. Wagner resolved the action, consenting to the entry of a permanent injunction based on the Section cited in the complaint. He also agreed to pay disgorgement and prejudgment interest. The Court will determine any financial penalty. A parallel criminal action against Mr. Wagner brought by the U.S. Attorney’s Office for the Western District of North Carolina.
Finally, Mr. Femenia, the tipper in the Wagner case above, was a source of inside information not just on the Shaw deal, but others, according to the Commission. SEC v. Femenia, Civil Action No. 3:12 cv 803 (W.D. N.C. Filed Dec. 5, 2012) is an action against the Wells Fargo investment banking associate. The complaint alleged that Mr. Femenia headed a 10 person insider trading ring. It included: Shawn Hegedus, a registered representative and long time friend of Mr. Femenia who is alleged to have been tipped by him; Aaron Wens and Matthew Musante, two other friends alleged to have been tipped by Mr. Femena; Anthony Musante, father of Matthew, also alleged to have been tipped by Mr. Femena; Danielle Laurenti, the girlfriend of Mr. Hegedus who is alleged to have tipped her along with four of his business colleagues, Roger Williams, James Hayes IV, and Kenneth Raby. The case centered on four take-over transactions: 1) The acquisition by GENCO Distribution Systems of ATC Technology Corporation, announced on July 19, 2010; 2) the purchase by Rock-Tenn Company of Smurfit-Stone Containers Corporation, announced on January 23, 2011; 3) the acquisition of K-Sea Transportation Partners by Kirby Corporation, announced on March 13, 2011; and 4) the purchase of The Shaw Group by Chicago Bridge & Iron Company, announced on July 30, 2012. The ring participants netted about $11 million in illegal profits, according to the complaint. The complaint alleged violations of Exchange Act Section 10(b).