Steven M. Dombrowski was the former director of internal audit at Allscripts Healthcare Solutions. Through his position he learned that the company’s first quarter 2012 financial results were much worse than expected. Despite restrictions, he decided to profit from his company’s misfortune.
He clearly knew that he couldn’t trade in the stock, so he decided to hide the trades in his wife’s account. Dombrowski began his insider trading by selling short 1,000 shares of Allscripts stock, and purchasing 50 Allscripts May $15 put option contracts. He kept buying more put options as he learned more and more about the upcoming earnings announcement. Of course, the stock price fell and the trading paid off. Dombrowski’s insider trading resulted in $286,211.55 in illegal profit.
How did he get caught? The complaint leaves out the details. But I noticed that the Options Regulatory Surveillance Authority played a role in the investigation. The options trading looked suspicious. I would guess that there are not that many options in Allscripts stock being traded. Dombrowski’s trades were probably outside of the norm for the stock and happened around the earnings release. That should easily raise the red flag for a stock like Allscripts that does not have a deep pool of liquidity.
Hiding the trading activity in his wife’s account was not going to work once regulators focused on the trades. That’s an easy one.