The U.S. Attorneys Office in Manhattan and the SEC continue to work in tandem in their war on insider trading. Their most recent cases were brought against a father and son. The father is Clayton Peterson, a member of the board of directors and chairman of the audit committee of Mariner Energy, Inc. The son is Drew Peterson, who worked as an investment adviser in Denver, Colorado. U.S. v. Peterson (S.D.N.Y. Filed Aug. 5, 2011); SEC v. Peterson, Civil Action No. 11-CV-5448 (S.D.N.Y. Filed Aug. 5, 2011).
The cases center on the acquisition of Mariner Energy by Apache Corporation, announced before the opening of the market on April 15, 2010. The transaction was initiated on March 25, 2011 when representatives of Apache began confidential discussions with representatives of Mariner energy. Clayton Peterson was a member of the board of directors at that time. Subsequently, on April 7, 2010 the Mariner Energy board held a special telephonic board meeting to evaluate the proposal. At the time Mariner Energy stock was trading at about $17 per share. Apache proposed to acquire the company for $25 per share.
Following the board meeting Clayton Peterson repeatedly tipped his son who in turn tipped others. The following trading resulted according to the court papers:
- On April 9, 2010 Mr. Peterson called his son and told him to purchase Mariner Energy stock for his daughter, Drew’s sister. In the conversation the father stated he recently participated in a number of Mariner Energy board meetings. Drew Person purchased shares in the account of his sister that day without her knowledge.
- Later on April 9, 2010 Clayton Peterson visited his son and directed him to buy more shares for the daughter/sister. Drew Peterson purchased more shares in the account of the sister and for an investment club.
- On April 9, 2010 Drew Peterson told a portfolio manager of a hedge fund who knew his father was on the Mariner Energy board (“hedge fund trader”) that his father had been in a number of board meetings. Drew Peterson recommended he buy shares in Mariner Energy.
- On April 12, 2010 Drew Peterson purchased additional shares of Mariner Energy. The hedge fund manager also purchased shares and call options in Mariner Energy.
- On April 12, 2010 Clayton Peterson participated in a Mariner Energy board meeting. He then called his son and told him the company would be acquired. In previous conversations he had not stated that the company would be acquired. Rather, he simply instructed his son to purchase the shares and told him he had been in board meetings for the company.
- On April 12, 2010 after speaking with his father Drew Peterson called the hedge fund manager and left him a coded message to the effect that Mariner Energy would be acquired.
- On April 13 and 14, 2010 the hedge fund manager purchased additional shares and options in Mariner Energy.
On April 15, 2010 following the announcement of the transactions the shares of Marine Energy rose about 42%. The hedge fund manager liquidated the positions he had built, yielding a profit of $5 million. Within days Drew Peterson and the various accounts for which he traded liquidated their positions yielding a profit of $150,000.
Clayton Peterson and his son Drew each pleaded guilty to criminal charges on Friday, August 5, 2011. Specifically, each pleaded guilty to one count of conspiracy to commit securities fraud and one count of securities fraud. Sentencing is scheduled for January 12, 2012.
The SEC brought a civil injunctive action against Clayton Peterson and his son. The complaint alleges violations of Exchange Act Section 10(b). It seeks a permanent injunction, disgorgement, prejudgment interest and civil penalties. In addition, the Commission has requested that Clayton Peterson be permanently prohibited from acting as an offer or director of a public company. The action is pending.
Program: Current Trends in FCPA Enforcement, August 17, 2011, Live in Menlo Park, CA, and webcast nationally. The program link is here.