CRIMINAL AND CIVIL INSIDER TRADING CASES

In the Griggs insider trading case discussed yesterday (here) defendant Noah Griggs, Jr. ended his career by trading in the shares of his company prior to its acquisition. Only civil charges were brought against Mr. Griggs. A more extreme case involves Scott Allen, charged in a criminal indictment and an SEC complaint for illegally tipping his long time friend John Bennett. U.S. v. Allen, 11 Crim 7997 (S.D.N.Y. Nov. 2011); SEC v. Allen, 11 Civ. 6443(S.D.N.Y. Sept. 15, 2011).

Mr. Allen was a principal in a human resources firm. His long time friend John Bennett, worked in the film industry but previously was in the securities business. From his work at his firm Mr. Allen learned about two upcoming tender offers. The first was by Takeda Pharmaceuticals, Inc. for Millennium Pharmaceuticals, Inc. The deal was announced on April 10, 2008. The second was by Dainippon Sumitomo Pharma Co. Ltd. for Sepracor. That transaction was announced on September 3, 2009. Each was a cash tender offer.

After learning about the deals Mr. Allen furnished the information to John Bennett. In return he received over $100,000 in cash payments. Mr. Allen did not purchase securities in either deal.

Mr. Bennet not only traded but also tipped his business partner who also traded. In the weeks before the Takeda – Millennium transaction, Mr. Bennett purchased call options. Specifically, between February 29, 2008 and April 2, 2008 he purchased 1090 call options. Once the deal was announced the share price increased 50% netting him a profit of about $619,000 million.

Similarly, prior to the Dainippon – Speracor transaction Mr. Bennett traded profitably. In this instance he purchased 1,700 call options. Following the announcement the share price increased 26% netting him $682,000. Mr. Bennett’s business partner also traded in both deals, making illicit profits.

When investigators approached Mr. Allen and inquired about his friend John Bennett, he tried to conceal their relationship by claiming that they had not spoken in three to four years. An analysis of the subway cards for the two men, however, showed them going through the turnstiles at the same time. Phone records also substantiated that Mr. Allen’s claims were not truthful.

As trial approached Mr. Allen changed his plea. He pleaded guilty to seven counts of securities fraud and one count of conspiracy to commit securities fraud. Sentencing is set for August 20, 2012. The Commission’s case is pending.