Insider Trading Charges Announced Against Two Former Stock Brokers in Scheme That Netted $1 Million
Defendants Traded on Inside Information Relating to IBM’s Acquisition of SPSS in 2009
|U.S. Attorney’s Office November 29, 2012|
Preet Bharara, the United States Attorney for the Southern District of New York, and Mary Galligan, the Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (FBI), today announced conspiracy and securities fraud charges against Thomas C. Conradt and David J. Weishaus, two former stock brokers at a securities trading firm (“Securities Trading Firm-1”), for their alleged involvement in an insider trading scheme. Specifically, Conradt, Weishaus, and their co-conspirators allegedly traded on the basis of material, non-public information (“inside information”) concerning IBM’s acquisition of a software company, SPSS Inc., in 2009, earning in the aggregate more than $1 million in profits.
Conradt was arrested this morning at his office in Louisville, Colorado, and is expected to be presented before U.S. Magistrate Judge Kristin L. Mix in the District of Colorado this afternoon. Weishaus was arrested this morning at his residence in Baltimore, Maryland, and is expected to be presented at 2:30 p.m. today in the District of Maryland.
Manhattan U.S. Attorney Preet Bharara said, “As alleged, Thomas Conradt, David Weishaus, and their co-conspirators engaged in a chain of illegal tipping simply because they wanted to get rich quick. Their alleged conduct demonstrates that they knew full well the criminality of trading on inside information, but they remained undeterred. We are committed to the principle that there is one set of rules for everyone, a commitment that this latest case demonstrates once again.”
FBI Acting Assistant Director in Charge Mary Galligan said, “Conradt and Weishaus stand charged, like so many others, with insider trading. Before the announcement by IBM, Weishaus wrote to a Conradt, ‘we need spss to run up I need that lexus.’ Greed isn’t good, and neither is trading on inside information. As alleged, the defendants knew their behavior was illegal, even messaging before the announcement, ‘I dont want to go to jail.’ Time and again, FBI agents arrest those who trade on inside information. We will continue to do so as long as this illegal conduct persists.”
The following allegations are based on the Indictment unsealed today in Manhattan federal court:
The inside information concerning IBM’s acquisition of SPSS allegedly originated from a corporate lawyer who was part of the legal team that represented IBM in the transaction (“Attorney-1”) in 2009. On May 31, 2009, Attorney-1 shared inside information concerning the transaction—including the names of the parties and the fact that IBM was going to acquire SPSS for a significant premium over SPSS’s market price—with his close friend (“CC-3”). The information was shared in confidence. Based on their longstanding history of sharing confidences, Attorney-1 expected that CC-3 would not share the information or use it to trade.
In June 2009, however, CC-3 bought SPSS common stock based on the inside information he was given by Attorney-1 and, in turn, shared the tip with his roommate, Conradt. Conradt then bought SPSS common stock and tipped Weishaus, his co-worker at Securities Trading Firm-1. On June 24, 2009, Weishaus started buying call option contracts in SPSS. In addition, Conradt and Weishaus tipped their co-workers, CC-1 and CC-2, who also bought SPSS call option contracts in June and July 2009 based on the inside information.
In instant message exchanges in July 2009, Conradt and Weishaus discussed their insider trading scheme and the source of their inside information. For example, on July 1, 2009, Weishaus wrote to Conradt, “Somebody is buying spss...we should get [CC-1] to buy a f***load [of SPSS shares].” Conradt responded, “Jesus don’t tell anyone else...we gotta keep this in the family.” Weishaus answered, “Dude, no way. I dont want to go to jail f*** that...martha stewart spent five months in the slammer...and they tried to f*** the Mavericks owner.” Later that same day, Weishaus wrote to Conradt, “Jesus, we need spss to run up I need that lexus.”
In another instant message exchange, on July 23, 2009, Conradt asked Weishaus to buy SPSS call options for Conradt, but Weishaus declined. In response, Conradt wrote, “wtf, I’m setting this deal up for everyone...makin everyone rich.” Weishaus responded, “[Another individual] is gonna put in 50k sept options.” Conradt then wrote, “Holy f***...God [CC-3] told me not to tell anyone...big mistake.” Weishaus responded, “Eh, we’ll get rich.”
When IBM announced its acquisition of SPSS on July 28, 2009, the share price of SPSS common stock rose by 41 percent in one day, from the prior day’s closing price of $35.09 per share to a closing price of $49.45 per share. Thereafter, Conradt, Weishaus, CC-1, CC-2, and CC-3 sold their SPSS positions, yielding profits of $2,538, $129,290, $629,954, $254,360, and $7,900, respectively, for a total profit in excess of $1 million.
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Conradt, 34, of Colorado, and Weishaus, 32, of Baltimore, Maryland, have each been charged with one count of conspiracy to commit securities fraud and three counts of securities fraud (counts two through four as to Conradt; counts five through seven as to Weishaus). Count one, the conspiracy charge, carries a maximum potential penalty of five years in prison and a fine of $250,000 or twice the gross gain or loss from the offense. Counts two through seven each carry a maximum potential penalty of 20 years in prison and a maximum fine of $5 million.
Mr. Bharara praised the investigative work of the FBI. He also thanked the U.S. Securities and Exchange Commission. Mr. Bharara noted that the investigation is continuing.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys John T. Zach and David B. Massey are in charge of the prosecution.
The charges contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.