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August 18, 2014 at 12:51 AM
Today the Securities and Exchange Commission and the U.S. Attorney for Massachusetts brought insider trading charges against two men who allegedly shared inside information when they played together on the same co-ed softball team.
No, of course I’m kidding, come on, they were golf buddies. They’re always golf buddies!
The SEC alleges that Patrick O’Neill, then a senior vice president at Eastern Bank, learned through his job responsibilities that his employer was planning to acquire Wainwright Bank & Trust Company. O’Neill tipped Robert H. Bray, a fellow golfer with whom he socialized at a local country club. In the two weeks preceding a public announcement about the planned acquisition, Bray sold his shares in other stocks to accumulate funds he used to purchase Wainwright securities.
That local country club appears to be the Oakley Country Club in Watertown, Massachusetts.1
Remember when I wrote about golf buddies accused of insider trading last month? GUESS WHAT COUNTRY CLUB THEY BELONGED TO.2 The Oakley Country Club would seem to be the biggest hotbed of alleged insider trading since SAC Capital.3
That’s not the only good thing in this case, though, I mean, your mileage may vary, but I find it pretty good. Bray is 76 years old and owned a construction company until 1999 or so. He owned some stocks but was not what you’d call a frequent size trader. Nor for that matter was Wainwright Bank & Trust. The SEC complaint has some transcripts of Bray’s conversations with E*TRADE customer service that are worth reading:
I’m trying to put an order in to buy some stocks and I can’t do it through my electronic thing how I normally do because if I put the order in I know it’s not going to fill. It’s a, you know, they don’t have that many shares. The market doesn’t do that many shares. So I put an order in for 25,000 shares and I believe that’s cancelled …. Now I want to buy that stock so how do I go about buying that stock? … I put an order in like for 25 — that’s kind of ridiculous because it doesn’t trade that much, right? …
I normally trade over the phone — punch the numbers — punch the letters — and then the trade gets executed. In this particular case, it seems the order was too large for that particular stock so I want to know how … do I go about doing it. … I placed an order for Wainwright Bank — WAIN — 25,000 shares. And I had a representative on the phone and I asked her to cancel that. … I know this kinda sounds crazy-how much of that stock can I buy right now? What’s available at what price? Do you know that? … If I want to buy — I can’t put an order in for 25,000, that’s crazy right? … What would you recommend that I do to get a small order, or however many I can, how do I go about that?
He ended up spending $288,058.40, and making a profit of $299,741.89 after the acquisition was announced.
As normally happens after acquisitions, the Financial Industry Regulatory Authority (FINRA) compiled a list of people who made fishy-looking Wainwright trades and circulated it among Eastern Bank executives to ask if they knew anyone on the list. O’Neill ignored the list and, when pressed by his supervisors, said things like, “I have a bad case of pneumonia and was told to stay home for the week, as it is bacterial and contagious.” When he came back this happened:
O’Neill met with his supervisor in person on September 13, 2010 at approximately 8 a.m. O’Neill’s supervisor instructed O’Neill that if he did not respond to the FINRA letter by the end of the day, Eastern Bank would seek employment-related discipline, including termination. O’Neill said that he needed to speak to his wife, and he left the office at approximately 9:30a.m.4 At approximately 3 p.m. that day, O’Neill again spoke to his supervisor and requested an additional day to “‘consider” Eastern Bank’s instruction that he provide the required information as he was still recovering from his illness and considering his response. Eastern Bank agreed to extend the time for a response until 5:00p.m. the next day.
On September 14, 2010 at 10:57 a.m., O’Neill emailed his supervisor stating without explanation that he was resigning from Eastern Bank “effective immediately.”
Surprisingly this did not end the matter! And now O’Neill and Bray are facing civil insider trading charges, and O’Neill is also facing criminal charges.
You may remember that the last Oakley Country Club case also featured a corporate executive who passed inside information to his golf buddy. But there’s an important difference. The corporate executive there was never charged with insider trading. (In fact, he was never even named in the complaint.) The SEC didn’t claim that that executive breached his duty to keep the corporate information confidential. Instead, it argued that the golf buddy breached his duty to keep the executive’s information confidential.
The theory there seemed to be that, if you’re a corporate executive, you can share inside information with your golf buddies the way you share it with your lawyer, say, or your priest, or your prostitute: The golf buddy relationship is one of trust and confidence, and disclosing corporate information inside that circle of trust is almost like not disclosing it at all.
