The Securities and Exchange Commission brought another insider trading case where the tips were allegedly traded on the golf course.
“Country clubs or similar venues may give people a false sense of security that leads them to think they can get away with trading on unlawful stock tips,” said Paul G. Levenson, director of the SEC’s Boston Regional Office. “But as in any social setting, people who trade securities based on confidential information they receive are taking a huge risk that their illegal tipping and trading will be identified by the SEC.”
Robert Bray triggered the FINRA warning lights with a large order of a thinly traded stock. According to an SEC complaint, Bray placed an order for 25,000 shares in Wainwright Bank & Trust Company. That was several days worth of volume in that stock. He started his buying spree on June 14. It several days to accumulate that much stock for his order.
On June 28 Wainwright announced that it was going to be acquired by Eastern Bank for a share price almost double what Bray had paid. That put almost $300,000 of profit in his pocket when the acquisition closed on November 18.
Of course that kind of excessive trading close to a transaction is going to trigger a FINRA inquiry. Bray’s name was on a list of 30 individuals who purchased Wainwright stock during the pre-announcement period. That list was circulated to employees at Eastern Bank for them to disclose if they knew anyone on the list.
According to the SEC, J. Patrick O’Neill, a Senior Vice President at Eastern Bank did not respond to the initial request. O’Neill also did not respond to the second request. Then he called in sick. Finally, he met with his supervisor who demanded that O’Neill respond or be subject to employment-related discipline. O’Neill resigned the next day. He also transferred title on his house to his wife that same day.
Now the SEC had a trader in one hand and in the other hand had an employee with access to the inside information who was acting suspiciously. The SEC just needed to find the link. O’Neill had the information but did not trade. Bray had the trading profits but no direct connection or confidential obligation to the inside information.
The SEC found the connection at the country club. Both O’Neill and Bray were members of the same local county club. The SEC also found a tiny business arrangement between Bray and O’Neill’s son.
That is all the SEC had to build its case. When questioned about his relationship with Bray, O’Neill pleaded the fifth and didn’t answer the SEC questions during his testimony. Bray did the same when he was questioned by the SEC. Apparently that really annoyed the SEC because they forwarded the case on to the Justice Department who brought criminal charges against O’Neill.
Once again, the cliche is proven. But it sounds like the SEC will have a hard time proving the transfer of information from O’Neill to Bray.
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