Former Global Wealth Management Firm Employee Arrested on Insider Trading Charges
|U.S. Attorney’s Office January 25, 2013|
NEWARK—An employee of a global wealth management firm (identified only as “Brokerage Firm A”) was arrested at his home this morning on insider trading charges related to Gilead Sciences Inc.’s $11 billion acquisition of New Jersey-based Pharmasset Inc., New Jersey U.S. Attorney Paul J. Fishman announced.
Kevin Dowd, 37, of Boca Raton, Florida, is charged by criminal complaint with conspiracy to commit securities fraud. Dowd was arrested this morning by agents of the FBI at his home and is scheduled to appear this afternoon before U.S. Magistrate Judge William Matthewman in West Palm Beach, Florida federal court.
According to the complaint:
Dowd was a registered representative in Brokerage Firm A’s Aventura, Florida branch office and held the titles of second vice president and financial advisor. He joined the firm in 2005 and worked there through late October 2012. A member of Pharmasset’s board of directors was the Aventura branch’s largest customer and informed his advisors at the Aventura branch that Pharmasset was in the process of being acquired by a large pharmaceutical company and that the acquisition price was going to be in the high $130s per share.
At approximately 7:00 a.m. on Monday, November 21, 2011, Gilead publicly announced that it had entered into an agreement with Pharmasset to acquire the company for approximately $11 billion, or $137 per share in cash. The purchase price represented an approximately 89 percent premium over Pharmasset’s closing price of $72.67 on November 18, 2011. In response to the announcement, Pharmasset’s stock price increased to $134.14 per share at the close of trading on November 21, 2011.
On Friday, November 18, 2011, prior to the public announcement of the Pharmasset acquisition, however, Dowd tipped conspirator J.F., a childhood friend, about the impending Pharmasset acquisition. Immediately following the tip, J.F. transferred $196,000 into a brokerage account he controlled that previously had no money in it and that had not been used for months and purchased approximately $196,000 worth of Pharmasset stock in that account. J.F. also tipped conspirator “E.B.,” who purchased 100 highly speculative “out-of-the-money” call options in Pharmasset within minutes of J.F.’s purchase of Pharmasset stock.
A few minutes after the public announcement of the Pharmasset acquisition, Dowd called J.F. several times. Later that same morning J.F. and E.B. engaged in a series of phone calls, following which they liquidated the positions in Pharmasset they had built the previous Friday. J.F. netted an illegal profit of $163,621 based on Dowd’s tip, and E.B. made an illegal profit of $544,706 from his sale of his Pharmasset options. In exchange for the tip, J.F. gave Dowd a wooden dock for his jet skis and a cashier’s check for $35,000, which was deposited into Dowd’s bank account on January 5, 2012. Dowd used the money for an in-ground pool at his Boca Raton home.
When confronted by FBI agents in July 2012 about his conduct, Dowd admitted that he told J.F. but falsely stated that he had never received information that Pharmasset was going to be acquired by another pharmaceutical company.
The conspiracy count with which Dowd is charged is punishable by a maximum potential penalty of five years in prison and a fine of $250,000.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Acting Special Agent in Charge David Velazquez in Newark, with the ongoing investigation leading to the criminal complaint. He also thanked the U.S. Securities and Exchange Commission’s Market Abuse Unit and Philadelphia Regional Office, under the direction of Daniel M. Hawke for its assistance.
The government is represented by Assistant U.S. Attorneys Gurbir S. Grewal and Mala Ahuja Harker of the U.S. Attorney’s Office Economic Crimes Unit in Newark.
The charge and allegations contained in the complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.