Former Broker Pleads Guilty To Obstructing SEC Insider Trading Investigation

George L. Smith pled guilty yesterday to one count of obstructing an SEC insider trading investigation. Mr. Smith is a former director and founding member of the Chicago Board of Options Exchange, director of the American Stock Exchange, chairman and founding member of the AMEX Commodities Exchange and managing director of New York City broker dealer Broadband Capital Management LLC.

Mr. Smith’s plea is based on allegations that during an SEC investigation into whether he engaged in insider trading, he submitted false documents, gave false testimony and procured false testimony by his administrative assistant. Specifically, the information alleged that in December 2003 Mr. Smith submitted documents to the SEC in response to a subpoena which included a memorandum that appeared to support his claim that he traded in the shares of a Pharmaceutical Company based on personal research rather than inside information. The memo, dated prior to his trades, recommended that account executives at Broadband consider as “good candidates to watch” a series of companies, including the one in which he traded. Attached was a Forbes Magazine article about the Pharmaceutical Company. In July 2004 Mr. Smith testified before the SEC that he circulated the memo prior to his trades and that it constituted the basis for his trades.

After the SEC expanded its insider trading investigation, Mr. Smith submitted a similar memo to the SEC regarding an Implant Company. In April 2006, a memo with attachments which Mr. Smith claimed demonstrated he traded in the Implant Company based on his independent research was furnished to the SEC. This memo, like the one about the Pharmaceutical Company, was dated prior to his trades. Attached were two analyst reports recommending the Implant Company. The memo was purportedly distributed at Broadband. Later Mr. Smith asked his administrative assistant to confirm that she had discovered the memo while reviewing the files.

In fact, both memos, according to the information, were fabricated. Likewise, Mr. Smith’s administrative assistant did not discover the second memo while searching the files. Mr. Smith is due to be sentenced in March 2009.