One of the hot topic areas of concern for the SEC is the use of material non-public trading information by professionals within the financial services industry. In this case against a Florida-based financial adviser, Kevin L. Dowd, the SEC alleges that, while Mr. Dowd did not personally trade on the material insider information, he did benefit monetarily by tipping the information to a person who traded on it.
According to the SEC, Mr. Dowd received details about an impeding acquisition of Pharmasset, Inc. in his capacity as a financial adviser for a registered broker-dealer. Mr. Dowd allegedly passed on the information to a friend in the penny stock promotion business, who traded on the information along with another person he “tipped,” resulting in profits in just two trading days of more than $700,000. Mr. Dowd, although he did not personally trade on the non-material information, did benefit by tipping the information though the receipt of a $35,000 payment and a jet ski dock from the tippee.
According to the SEC, as a financial advisor, Mr. Dowd should have known better and refrained from both tipping others and benefiting from such actions.
The SEC’s civil complaint was filed by the SEC in federal court in New Jersey and alleges that Mr. Dowd violated Sections 10(b) and (14)(e) of the Securities Exchange Act of 1934 and Rule 10b-5 and 14e-3 thereunder. The SEC is seeking disgorgement of Mr. Dowd’s ill-gotten gains, a financial penalty ,and permanent injunction against Mr. Dowd. In addition, the U.S. Attorney’s Office for the District of New Jersey, in a parallel action, announced criminal charges against Mr. Dowd.