The Securities and Exchange Commission (SEC) brought charges against four people on Thursday, including a former Barclays analyst, for generating nearly $750,000 in illegal profits by trading in advance of four corporate news announcements.
The four have agreed to pay roughly $1.67 million to settle the regulator’s civil fraud charges.
SEC: Modus operandi of the case
According to the SEC, the former Barclays capital analyst John Gray and his friend Christian Keller used disposable prepaid mobile phones to conduct insider trading between 2009 and 2013. The regulator said that in exchange for kickbacks, Keller, who once worked at Silicon Valley’s Applied Materials Inc., tipped off Gray and Shephard about his company’s acquisitions of Semitool Inc. and Varian Semiconductor Equipment Associates in 2009 and 2011, respectively.
According to the SEC complaint, in the week before the acquisition deal was announced in November 2009, Martin and Gray purchased Semitool call options correctly betting that its stock price would increase. The SEC alleges that Marin and Gray made similar bets when Keller provided information in 2011 when the $4.9 billion merger of Varian Semiconductor Equipment Associates was publicly announced. Varian’s stock price jumped over 50%, resulting in gains of about $230,000.
The SEC also alleged that the group bet against Rovi stock through buying put options prior to a public announcement that the Santa Clara-based digital entertainment company was lowering its earnings projections for the second quarter of 2012, as well as the entire fiscal year. According to the SEC, those trades yielded over $400,000 in total profits for the group.
Tried to hide illegal trades
The SEC said both Gray and Keller then tried to hide illegal trades in an account held in the name of Gray’s friend, Kyle Martin, who worked at a Beverly Hills car dealership. According to the SEC, Gray also gave tips to his friend Aaron Shepard, a self-employed installer of car stereos from San Francisco.
Jina Choi, the director of the SEC’s San Francisco regional office, said in a statement: “Gray and Keller tried to evade detection by trading in another person’s name, using prepaid disposable phones, and making structured cash withdrawals to share profits. Despite their careful planning, we were able to detect the suspicious trading and effectively use our cooperation program to expose their nefarious scheme”.
The four men agreed to settle the SEC charges by paying over $1.6 million combined, though they neither admitted guilt nor denied the allegations. While Gray of Redondo Beach, agreed to pay about $758,200 and accept a securities industry ban, Keller of Los Altos, settled for $473,471, and accepted a 10-year ban from serving as an officer or director of public companies. Marin of Santa Clarita and Shepard of San Francisco settled for $264,680 and $171,021 respectively.
