DOJ, SEC Charge Associate GC with Insider Trading

Insider trading seems to be the theme of the day. First there was trading on the Amazon/Whole Foods deal. Then the end of a three-chain insider trading ring. Now and Associate General Counsel of SeaWorld has pleaded guilty to DOJ criminal insider trading charges and been named as a defendant by the Commission. SEC v. Powers, Civil Action No. 6:19-cv-00664 (M.D. Fla. Filed April 9, 2019).

The pattern here, as in the action involving the Amazon/Whole Foods deal, is classic – days before the earnings announcement the man with all the information trades, going all in with his stock account, reaping insider trading profits.

Defendant Paul Powers was the Associate General Counsel and Assistant Secretary of SeaWorld. He has held those positions since 2011. Mr. Powers held all his company stock in a TD Ameritrade account. He also had material, non-public company information flow about the firm which told him that:

Earnings history: Earnings for the company and attendance at the park had declined;

First quarter: In 1Q 2018 the reverse happened – attendance and revenue were up year over year but the shift had been anticipated for seasonal reasons, meaning revenues were essentially flat;

A changing trend: May 2018 numbers showed a change, SeaWorld had improving prospects;

Second quarter projections: By June internal projections showed that attendance and earnings would be up about 8% over the prior year by the end of 2Q 2018;

Confirming the trend: Information furnished to members of the revenue committee such as Mr. Powers just prior to the June 20 he attended appeared to confirm the trend;

The trend is correct: Materials for the next revenue committee meeting on July 9 confirmed that SeaWorld met the projected growth with attendance up 8.7%;

Draft release: A draft earnings release Mr. Powers received on August 1 reflected the increased numbers – EBITDA, for example, was up 59.1% compared to the prior year;

The 10-K: Five days later the firm published a Form 8-K, dated August 6, 2018, disclosing the financial information.

Four days before the draft release Mr. Powers had finalized was filed with the SEC – and weeks after he had been told in a letter by the company that the trading window was closed – the lawyer liquidated his stock account and purchased more company shares. Following the filing of the Form 8-K Mr. Powers had illegal trading profits of $64,645. The Commission’s complaint alleged violations of Exchange Act Section 10(b). That complaint is pending.

Mr. Powers also pleaded guilty to one count of insider trading in the DOJ’s parallel criminal action. In the plea elocution he admitted the key facts detailed above. The date for sentencing has not been set.

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