FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
05/14/2015 03:40 PM EDT
The Securities and Exchange Commission today charged a father and son in New York with conducting a serial insider trading scheme involving tips of key nonpublic information in coded e-mail messages disguised as discussions about golf.
The SEC alleges that Sean R. Stewart, currently a managing director at a prominent investment bank, routinely tipped his father Robert K. Stewart with confidential information about future mergers and acquisitions involving clients of two investment banks where he has worked during the past few years. The elder Stewart, a certified public accountant and CFO of a technology company, cashed in on the tips by placing and directing highly profitable securities trades ahead of at least a half-dozen merger and acquisition announcements. The scheme generated approximately $1.1 million in illicit proceeds in a four-year period.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against the Stewarts.
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Robert Stewart recruited a trading partner to help him hide his illegal trading and the connection to his son as the source of the nonpublic information about investment bank clients. Trades were conducted in the partner’s account, and the illicit profits were shared in the form small cash payments to Robert Stewart to avoid creating a clear paper trail of the kickbacks. They also spread trades over numerous stock options series in an attempt to avoid raising red flags with regulators.
“Serial insider traders assume a huge risk that we will detect their pattern of trading and connect them to their source of confidential information,” said Daniel M. Hawke, Chief of the Division of Enforcement’s Market Abuse Unit. “We have integrated new technological tools to quickly and easily identify relationships among traders and spot suspicious trading across multiple securities.”
According to the SEC’s complaint, there were additional ways that Robert Stewart and his fellow trader attempted to conceal the scheme and evade detection when sharing nonpublic information obtained from Sean Stewart about investment bank clients. They primarily met in-person or used coded e-mail messages to discuss the scheme and trading plans. Among examples of e-mail text using golf terminology were “saw local story about high cost of golf reservations since a foreign company purchased all- even more expensive than imagined” and “might have an opportunity to play golf- but would need to book the reservation as soon as the office opens Tuesday morning.”
The SEC’s complaint charges Sean and Robert Stewart with violations of the antifraud provisions of the federal securities laws.
The SEC’s investigation, which is continuing, has been conducted by Kelly L. Gibson, David W. Snyder, and John S. Rymas of the Market Abuse Unit in the Philadelphia Regional Office. The case has been supervised by Mr. Hawke and Joseph G. Sansone, Co-Deputy Chief of the Market Abuse Unit. The litigation will be led by David L. Axelrod, Regional Trial Counsel, and Catherine E. Pappas, Senior Trial Counsel, in the Philadelphia office. The SEC appreciates the assistance of the U.S. Attorney’s Office in the Southern District of New York, Federal Bureau of Investigation, and Financial Industry Regulatory Authority.