When Your Client is a Corporate Insider

The regulators are going to nail you on an insider trade, especially on one placed just before an acquisition of a company.  Especially if you’re a jackass using options or buying a noticeable amount of stock.  In most cases, the trading activity leads them to you, and then making the connection to figure out how you got the info is pretty simple.

Check out this crew from Georgia…

From SEC.org:

The Securities and Exchange Commission today charged eight individuals living in the Griffin, Ga., area for their involvement in an insider trading ring that generated more than $500,000 in illegal profits based on nonpublic information about an upcoming company merger.

The SEC alleges that local accountant Thomas D. Melvin, Jr. exploited confidential information from a client who was on the board of directors at Chattem Inc., a Tennessee-based pharmaceutical company known for such over-the-counter products as Allegra, Gold Bond, and Icy Hot. In late 2009, after Chattem’s board was informed that French pharmaceutical manufacturer Sanofi-Aventis Inc. made a tender offer to purchase the company, Melvin’s client sought his professional advice on the financial impact of his Chattem stock options being involuntarily exercised due to a change in control of the company. Melvin breached his duty of confidentiality to the client and proceeded to tip four of his friends and associates about the likely increase in the company’s stock price as a result of the impending transaction. Those individuals then knowingly traded on the confidential information ahead of the public announcement of the merger, and some even tipped others who traded illegally as well.

Financial advisers come into contact with wealthy individuals all the time and many of them are insiders at public companies.  As part of the planning process, sometimes clients need to relay non-public info about a company to their adviser.  It is up to the adviser not to be a dirtbag.  Melvin couldn’t help himself.

 

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