SEC Charges Market Professional With Insider Trading
The SEC filed insider trading charges against a registered representative employed in the Florida office of a broker. At the same time the U.S. Attorney for the District of New Jersey filed parallel criminal charges. SEC v. Dowd, Civil Action No. 3:13-cv-00494 (D. N.J.); U.S. v. Dowd (D.N.J.).
The actions center on the acquisition of Pharmasset, Inc., by Gilead Sciences, Inc. announced before the market opened on Monday, November 21, 2011. The announcement followed a non-public auction process which transpired over several weeks. The cash tender offer was for $137 per share, an 89% premium over the closing price on the prior trading day. Following the announcement the share price rose 84.6%.
Defendant Kevin Dowd had been employed for a number of years as a registered representative in the Florida office of the broker. One of the long time clients of the firm was a Director of Pharmasset. During the auction process for the company, the Director informed a Portfolio Manager at the brokerage firm that his company would soon be sold. The Director updated the Portfolio Manager on the deal as the transaction progressed. The Portfolio Manager was the financial adviser to the Director. The conversation was in confidence.
The Portfolio Manager informed Dowd about the transaction. At a meeting involving Mr. Dowd, the Managing Director of the broker’s office and the Office Administrator the Portfolio Manager discussed the transaction in which Pharmasset would be acquired. Specifically, at the meeting the Portfolio Manager instructed the group that they were prohibited from recommending or trading Pharmasset securities because they were in possession of inside information.
Later the Portfolio Manager instructed Mr. Dowd to ensure that the Managing Director did not trade. Mr. Dowd was responsible for entering securities trades for the Managing Director in his personal accounts.
On the last trading day before the deal announcement Mr. Dowd is alleged to have informed a long time friend who worked as a Penny Stock Promoter about the proposed transaction. That person purchased 2,700 shares of Pharmasset on the same day of the call, Friday, November 18, 2011. The Penny Stock Promoter also told another friend who immediately bought call options. Following the announcement of the deal on the next trading day the Penny Stock Promoter had illegal trading profits of $163,621 while his friend had profits of about $544,706.
The Commission’s complaint alleges violations of Exchange Act Sections 10(b) and 14(e). The SEC’s case and that of the U.S. Attorney are pending.