Father of Former Investment Bank Managing Director Pleads Guilty to Insider Trading Conspiracy
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ROBERT STEWART, the father of former investment bank managing director Sean Stewart, pled guilty today to participating in a conspiracy to trade on inside information about several mergers and acquisitions announced between 2011 and 2014. ROBERT STEWART was arrested on May 14, 2015, and Sean Stewart surrendered to federal authorities that same day. Charges against Sean Stewart remain pending before U.S. District Judge Laura Taylor Swain. A third member of the charged conspiracy, cooperating witness Richard Cunniffe, pled guilty before Judge Swain on May 12, 2015, and awaits sentencing. ROBERT STEWART is scheduled to be sentenced by Judge Swain on November 12.
Manhattan U.S. Attorney Preet Bharara said: “Instead of teaching his son lessons of right and wrong, Robert Stewart worked with him to break the law by trading on nonpublic information and sharing in the benefits with him. Robert Stewart’s criminal actions—to which he has pled guilty today—perpetuate the unfortunate perception that the markets are rigged in favor of those with connections.”
According to the agreement pursuant to which ROBERT STEWART entered his plea of guilty today, the underlying criminal Complaint filed May 13, 2015, the Superseding Indictment filed July 15, 2015, and statements made during court proceedings:
In early 2011, Sean Stewart, who at the time held the position of Vice President in the Healthcare Investment Banking Group of a global bank headquartered in Manhattan (“Investment Bank A”), began tipping his father, ROBERT STEWART, with nonpublic information about upcoming mergers and acquisitions. The first of these deals involved the acquisition of Kendle International Inc. (“Kendle”) by INC Research, LLC, which was announced publicly on May 4, 2011. Sean Stewart worked on the deal, representing Kendle. ROBERT STEWART made about $7,900 in profits on purchases of Kendle stock executed in February and March of 2011. When questioned by the Securities and Exchange Commission about his Kendle trades in May 2013, ROBERT STEWART reported that he used the proceeds of those trades to pay expenses related to Sean Stewart’s June 2011 wedding.
The second deal about which Sean Stewart tipped ROBERT STEWART was the acquisition of Kinetic Concepts Inc. (“KCI”) by Apax Partners, announced on July 13, 2011. Although ROBERT STEWART purchased some stock in KCI based on Sean Stewart’s tip, he sold that stock before the acquisition was announced, around the same time that Sean Stewart learned the Financial Industry Regulatory Authority was conducting an inquiry into ROBERT STEWART’s Kendle trading.
Also around this time, in the spring of 2011, ROBERT STEWART expressed a concern to co-conspirator and cooperating witness Richard Cunniffe that ROBERT STEWART was “too close to the source” to be trading in KCI stock in his own account, and asked Cunniffe to make purchases of KCI call options for ROBERT STEWART in Cunniffe’s brokerage account. Cunniffe agreed to do so, and also mirrored for his own benefit the KCI trades that ROBERT STEWART was directing.
When the KCI/Apax Partners deal was announced, ROBERT STEWART and Cunniffe reaped profits totaling approximately $107,790. At around this time, ROBERT STEWART told Cunniffe that the source of the KCI tip and the earlier Kendle tip had been ROBERT’s son. Later, around the spring of 2012, ROBERT STEWART clarified for Cunniffe that the son in question was Sean Stewart, who worked on the “sell side” on Wall Street.
In October 2011, Sean Stewart left Investment Bank A. A few months later, he joined an investment banking advisory firm headquartered in Manhattan (“Investment Bank B”) as a Managing Director.
During Sean Stewart’s tenure with Investment Bank B, based on tips concerning nonpublic acquisition-related information supplied by Sean Stewart, ROBERT STEWART had Cunniffe conduct options trading in advance of the public announcements of three more deals: (1) the acquisition of Gen-Probe Inc. by Hologic Inc., announced on April 30, 2012; (2) the acquisition, by tender offer, of Lincare Holdings Inc. (“Lincare”) by Linde AG, announced on July 1, 2012; and (3) the acquisition of CareFusion Corp. (“CareFusion”) by Becton, Dickinson & Co. (“Becton”), announced on October 5, 2014. Investment Bank B represented Hologic Inc. in connection with its acquisition of Gen-Probe Inc.; Linde AG in connection with its acquisition of Lincare; and CareFusion in connection with its acquisition by Becton. The profits that ROBERT STEWART and Cunniffe reaped from illegal insider trading in advance of the announcements of these three deals totaled approximately $1.1 million. In the midst of the scheme, in December 2012, ROBERT STEWART transferred at least $15,000 to Sean Stewart.
To try to avoid detection for their crimes, ROBERT STEWART and Cunniffe refrained from speaking explicitly about their trading over the phone or e-mail, sometimes using “golf”-related code. For example, shortly after the announcement of Lincare’s proposed acquisition by Linde AG, a German company, ROBERT STEWART wrote to Cunniffe that he had seen a news story about the “high cost of golf reservations since a foreign company purchased all-even more expensive than imagined.” Other steps ROBERT STEWART and Cunniffe took to avoid detection included trying to discuss their trading at face-to-face meetings and adopting a profit-splitting mechanism that had Cunniffe paying ROBERT STEWART his portion of the illegal proceeds in small increments, over time, typically in cash.
In March and April of 2015, Cunniffe recorded meetings he had with ROBERT STEWART. During one such meeting, ROBERT STEWART accepted a payment of $2,500 cash from Cunniffe, which was the balance of the proceeds owed to ROBERT STEWART for profitable trading executed in Cunniffe’s account in advance of the CareFusion acquisition announcement. Also during this meeting, ROBERT STEWART admitted that Sean Stewart once chastised him for failing to make use of a tip, saying, “I can’t believe I handed you this on a silver platter and you didn’t invest in it.”
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ROBERT STEWART, 60, of North Merrick, New York, pled guilty to Count One of a nine-count Superseding Indictment. Count One charges a conspiracy to commit insider trading and carries a maximum term of five years in prison. As part of his guilty plea, ROBERT STEWART agreed to forfeit $150,000. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.
Mr. Bharara praised the investigative work of the FBI and also thanked the Securities and Exchange Commission, which has filed civil charges in a separate action.
The charges were brought in connection with the President’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’s 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. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Sarah E. McCallum and Brooke E. Cucinella are in charge of the prosecution.
The charges contained in the Superseding Indictment are merely accusations, and Sean Stewart is presumed innocent unless and until proven guilty.