The Securities and Exchange Commission today charged 11 individuals who were involved in separate insider trading schemes that were detected through surveillance of unusual trades preceding two different company merger announcements.
The SEC alleges that five individuals, including a former investment banker at Goldman Sachs & Co., illegally tipped or traded on confidential information ahead of an announcement last year that Liberty Mutual Insurance Company would acquire Safeco Corporation, a Seattle-based insurance company.
The SEC additionally alleges that six other individuals illicitly traded on non-public information in advance of an announcement in 2005 that private equity firm Odyssey Investment Partners LLC would acquire Neff Corporation, a Miami-based rental equipment company.
"The SEC and self-regulatory organizations work together to detect and investigate suspicious trades surrounding company mergers," said Robert Khuzami, Director of the SEC's Division of Enforcement. "These individuals traded on confidential information with reckless disregard for the fairness of the markets and utter disrespect for their jobs or close-knit relationships. But their greed left a trail for investigators to follow."
David Nelson, Director of the SEC's Miami Regional Office, added, "These individuals chose money over integrity as they abused their positions of trust and misused privileged information. Whether they learned about the pending mergers through business, family, or friends, they exploited those relationships to make an easy buck."
The SEC filed three separate complaints against individuals involved in insider trading schemes prior to the announcement of the Safeco acquisition:
- In a complaint filed in federal court in Orlando, the SEC alleges that Anthony Perez of Maitland, Fla., illegally tipped his brother Ian C. Perez of Orlando with material non-public information that he obtained through his job at Goldman Sachs while working on a potential acquisition of Safeco for a client. Ian Perez then bought Safeco call options one day ahead of the public announcement and later sold them for a profit of more than $152,000.
- In a complaint filed in federal court in Massachusetts, the SEC alleges that Peter E. Talbot of Springfield, Mass., then a financial analyst at a subsidiary of The Hartford Financial Services Group, tipped his nephew Carl E. Binette of Ludlow, Mass., after he learned at work that Safeco was an acquisition target. Using Binette's brokerage account, Talbot and Binette bought Safeco call options over a six-day period leading up to the public announcement and sold them afterwards for a profit of more than $615,000.
- In a complaint filed in U.S. District Court for the Western District of Washington, the SEC alleges that Math J. Hipp of Seattle engaged in insider trading based on confidential information he misappropriated from his wife, an executive assistant at Safeco. Hipp bought Safeco call options six days ahead of the public announcement and later sold them for a profit of more than $118,000.
The Perez brothers have agreed to settle the SEC's charges without admitting or denying the allegations. Anthony Perez will pay a penalty of $25,000 and Ian Perez agreed to pay disgorgement and prejudgment interest totaling $152,992.
Hipp has agreed to pay a total of $239,770 to settle the SEC's charges against him without admitting or denying the allegations.
The SEC also filed a complaint in the U.S. District Court for the Southern District of Florida alleging separate incidents of insider trading by six individuals in advance of the public announcement that Odyssey Investment Partners would acquire the Neff Corporation:
- The SEC alleges that Thomas L. Borell, a Miami-based lawyer, gained access to confidential information through his close friendship with a Neff director who also is the brother of Neff's CEO. Borell misappropriated the inside information to buy more than $1.3 million of Neff stock during the six weeks prior to the acquisition announcement. Borell purchased the majority of his Neff stock during times while he and the director's families were on vacation together. While at Walt Disney World for four days, Borell called his broker 20 times and purchased 6,100 shares of Neff stock. During a nine-day ski trip to Vail, Colo., Borell called his broker more than 50 times and purchased 171,894 shares of Neff stock. In the weeks following the acquisition announcement, Borell sold his Neff stock for a profit of nearly $1 million.
- The SEC alleges that Dr. Sebastian De La Maza of Miami learned about the pending acquisition from his daughter, who is married to Neff's CEO. During the few weeks preceding the acquisition announcement, De La Maza bought Neff stock 14 times. In contrast, during the previous year, De La Maza made no trades in his wife's IRA, only a handful of trades in a joint account, and averaged less than one transaction a month in his own IRA. Following the Neff acquisition, De La Maza exchanged the Neff shares for a profit of $84,000.
- The SEC alleges that Alberto J. Perez of Miami, who is a close friend and business associate of Neff's CEO, learned of the possible acquisition while working at an office at Neff's headquarters two doors down from the acquisition due diligence teams. He then illegally tipped his brother Jose G. Perez of Miami with the confidential information, and during the next few weeks they sold other stock and used the money to purchase Neff stock for the first time through a joint account the brothers shared. Following the acquisition, they exchanged 83,000 Neff shares for a profit of nearly $400,000.
- The SEC alleges that attorney and accountant Kevan D. Acord of Overland Park, Kan., along with another accountant who works for him, Philip C. Growney of Kansas City, Mo., traded on inside information they obtained in the course of their work preparing Neff's tax returns and providing miscellaneous tax and legal advice. Within an hour of a phone call that informed them of details about the potential transaction, Acord bought Neff shares for the first time for his personal account and for the account of one of his long-time clients. Following the acquisition, Acord exchanged the shares in his personal account for a profit of $7,719, and exchanged the shares in the client account for a profit of $146,572. Growney also made his first-ever purchase of Neff shares in the days leading up to public announcement of the acquisition, and he sold his Neff stock for a profit of nearly $13,000 afterwards.
With the eight remaining defendants in this series of insider trading cases, the SEC is seeking injunctions against further violations, the return of ill-gotten gains with prejudgment interest, and financial penalties. The SEC is additionally seeking an officer and director bar against Acord.
The SEC appreciates the assistance of the Financial Industry Regulatory Authority (FINRA) and the Chicago Board Options Exchange (CBOE) in these cases.