The Securities and Exchange Commission filed civil insider-trading charges against Sean Stewart and his father, Robert Stewart, in a federal court in New York. Federal criminal charges were filed simultaneously against the father and son in the same federal court by the US Attorney’s office located in Manhattan. The SEC alleged that, on at least six occasions from 2010 to 2014, the son provided trading tips to his father on future mergers and acquisitions in breach of duties he owed his investment bank employers and the companies they advised (the son worked at two different investment banks during the relevant time). According to the SEC, the father used an unnamed third person, a friend, to place the relevant trades based on the inside information. The father and his friend together made approximately US $1.1 million as a result of these transactions, said the SEC. Some of this money was kicked back to the son, including as payment for part of his son’s wedding expenses, claimed the SEC. Among other techniques to avoid detection, charged the SEC, the father and his friends met primarily in person to discuss the illicit transactions and used coded email messages referencing golf to help disguise their trading. For example, to alert his friend to purchase options in one company his son specified, the father wrote to his friend that he “might have an opportunity to play golf – but would need to book the reservation as soon as the office opens Tuesday morning.” Based on this coded advice and prior information the father shared with him, the friend purchased options in the relevant company on the next Tuesday morning, the SEC charged. The SEC seeks disgorgement of profits and civil penalties against the respondents. The respondents were charged criminally with multiple counts of conspiracy to commit wire fraud, securities fraud and fraud in connection with a tender offer. Each charge could result in a maximum prison term of 20 years for each respondent.
Hard to Believe: It was Shakespeare’s Juliet who said, “[w]hat’s in a name? that which we call a rose/By any other name would smell as sweet.” However, the SEC’s and the Department of Justice’s cases against Sean and Robert Stewart allege that the father, Robert, also believed that a name is irrelevant. He thought that, by masquerading stock tips in golf colloquialisms, the advice would be fully understood no matter how camouflaged, claimed the regulators. Time will tell whether the SEC and the Department of Justice prevail in their allegations that an illicit stock tip is an illicit stock tip no matter what it’s called. And, separately, in another matter that occupied headlines last week, attorneys for New England Patriots quarterback Tom Brady argued it was unfair for their client to be suspended for four games because of his alleged “more probable than not” role in having footballs deflated to below minimum air pressure standards for a playoff game last year with the Indianapolis Colts. Counsel for the National Football League had previously claimed it was somewhat incriminating that one of the attendants who handled the suspect footballs had called himself Mr. Deflator. However, counsel for Mr. Brady claimed that the league’s attorney had entirely misinterpreted this reference. The attendant referred to himself as Mr. Deflator – not because he tampered with footballs – but because his goal was to lose weight; “deflate was a term … used to losing weight.” Perhaps for Juliet, a rose no matter the name would smell as sweet, but here something smells rotten – and it’s not “something rotten in the state of Denmark” (from Shakespeare’s tragedy Hamlet) but in Foxboro, Massachusetts! Time will tell on this matter too.