The following excerpt is from the SEC website:
Washington, D.C., Aug. 11, 2011 — The Securities and Exchange Commission today charged a California man with insider trading for a 3000 percent profit based on confidential information that he learned from his girlfriend prior to Walt Disney Company’s acquisition of Marvel Entertainment.
The SEC alleges that Toby G. Scammell, who worked at an investment fund at the time, purchased highly speculative Marvel call options beginning in mid-August 2009. He secretly used money in his brother’s accounts over which he had been given control when his brother was deployed to serve in Iraq a few years earlier. Just before Scammell purchased many of the Marvel securities, he searched the Internet for such terms as “insider trading,” “material, non-public information,” and “Rule 10b-5.”
According to the SEC’s complaint filed in U.S. District Court for the Central District of California, Scammell’s girlfriend worked on the Marvel acquisition as an extern in Disney’s corporate strategy department, and she possessed confidential details about the pricing and timing of the deal. Scammell illegally traded on this non-public information in breach of his duty of trust and confidence to his girlfriend. Marvel’s stock price jumped more than 25 percent after the Aug. 31, 2009, public announcement, and Scammell then sold all of his Marvel options. He didn’t reveal his trades or profits to his brother or his girlfriend.
“Scammell exploited his romantic relationship for a financial windfall. His misuse of confidential information gave him an unfair and illegal edge over other traders in the markets,” said Rosalind R. Tyson, Director of the SEC’s Los Angeles Regional Office.
According to the SEC’s complaint, Scammell and his girlfriend often discussed her work projects at Disney. Scammell lived with his girlfriend in her Los Angeles apartment in late July 2009 when the Marvel deal heated up at Disney and his girlfriend was assigned to work on it. She explained to Scammell in an e-mail that she could not tell him the name of the company involved because of “confidentiality,” but she noted that “it’s very recognizable and nothing I’ve mentioned before.”
According to the SEC’s complaint, Scammell and his girlfriend had multiple discussions about whether she should delay her business school applications so that she could write about the high-profile acquisition she was working on at Disney as part of her business school applications. She worked long hours on the Marvel acquisition — sometimes from home — in the five weeks leading up to the deal. She received detailed information about the anticipated acquisition including the $50 per share acquisition price. Scammell had access and the password to his girlfriend’s Blackberry on occasion.
The SEC alleges that Scammell obtained the identity of the acquisition target from his girlfriend by overhearing one or more of her Marvel-related conversations, seeing electronic or paper documents in her possession related to the Marvel acquisition, or through his own work-related conversations with her. For instance, when Scammell’s girlfriend learned that the acquisition would be announced by Labor Day, she informed him the timing of the announcement would allow them to attend her friend’s wedding. It was around this time that Scammell began searching the Internet regarding call options.
According to the SEC’s complaint, Scammell had never before traded in Marvel securities, and had only one previous experience trading call options that was unsuccessful. In the weeks leading up to the Disney-Marvel announcement, Scammell made several purchases totaling more than $5,400 in Marvel call options with remarkable strike prices of $50 and $45 even though Marvel had never traded above $41.74. Most of the Marvel options that Scammell purchased were set to expire on September 19, just weeks after the announcement. Scammell’s trades were so unusual that his purchase of options represented 100 percent of the market in many instances. After the public announcement that Marvel would be acquired by Disney, Scammell sold his Marvel options for a profit of more than $192,000 — a 3000 percent return in less than a month.
The SEC’s complaint alleges that Scammell had limited personal funds at the time, so he secretly used his older brother’s money to buy the majority of the Marvel call options. Scammell had obtained trading authority over his brother’s account when he was deployed to serve in Iraq with the U.S. Army. Scammell never told his brother that he had invested his money in Marvel or that his brother’s account had increased by more than $100,000 in less than one month as a result of the Marvel trades.
The SEC’s complaint alleges that Scammell, who now lives in Greenbrae, Calif., violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks a permanent injunction, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.
The SEC’s investigation was conducted by Teri M. Melson in the Los Angeles Regional Office, and the litigation effort will be led by Spencer E. Bendell. The SEC appreciates the assistance of the Options Regulatory Surveillance Authority.
The SEC’s investigation is ongoing.
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