Former Global Wealth Management Firm Employee Pleads Guilty to Insider Trading Charges
|U.S. Attorney’s Office September 30, 2013|
TRENTON, NJ—A former employee of a global wealth management firm admitted today to passing on material, non-public information concerning Gilead Sciences Inc.’s (Gilead) $11 billion acquisition of New Jersey-based Pharmasset Inc. (Pharmasset), U.S. Attorney Paul J. Fishman announced.
Kevin Dowd, 38, of Boca Raton, Florida, pleaded guilty before U.S. District Judge Anne E. Thompson in Trenton federal court to an information charging him with conspiracy to commit securities fraud.
According to documents filed in this case and statements made in court:
Dowd was a registered representative of a global wealth management firm (identified as “Brokerage Firm A” in court documents) in the firm’s Aventura, Florida branch office and held the titles of second vice president and financial adviser. He joined the firm in 2005 and worked there through late October 2012. The Aventura branch’s largest customer was a member of Pharmasset’s board of directors. The Pharmasset board member informed his advisers 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.
On November 21, 2011, Gilead publicly announced that it had entered into an agreement with Pharmasset to acquire the company for $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 November 18, 2011, prior to the public announcement of the Pharmasset acquisition, Dowd tipped conspirator J.F., a childhood friend, about the impending Pharmasset acquisition, knowing that J.F. was going to trade on the material, non-public information. Immediately following the tip, J.F. purchased approximately $196,000 worth of Pharmasset stock. J.F. then 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.
On November 21, 2011, after the public announcement of the Pharmasset acquisition, J.F. and E.B. liquidated the positions in Pharmasset they had acquired November 18, 2011. J.F. netted an illegal profit of $163,621 based on Dowd’s tip. Trades placed by E.B. resulted in an illegal profit of $544,706 from the sale of Pharmasset options. Dowd admitted that his personal gain from passing along the material, non-public information was $35,000.
Dowd faces a maximum potential penalty of five years in prison and a fine of $250,000. Sentencing is scheduled for January 15, 2014.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Aaron T. Ford in Newark, with the investigation leading to today’s guilty plea. 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 Deputy Chief Gurbir S. Grewal and Assistant U.S. Attorney Mala Ahuja Harker of the U.S. Attorney’s Office Economic Crimes Unit in Newark.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys' offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.