Two Former Stock Brokers Charged in Manhattan Federal Court with Insider Trading Offenses
|U.S. Attorney’s Office June 25, 2014|
Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, 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 BENJAMIN DURANT and DARYL PAYTON, two former stock brokers at a securities trading firm (“Securities Trading Firm-1”), for their alleged involvement in an insider trading scheme. Specifically, DURANT, PAYTON, 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 hundreds of thousands of dollars in profits. DURANT and PAYTON were arrested this morning at their homes in Manhattan, New York, and will be presented in Manhattan federal court before U.S. Magistrate Judge Michael H. Dolinger this afternoon.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Benjamin Durant and Daryl Payton not only acquired inside information about a corporate acquisition and made illegal profits from it, but they colluded with others to conceal their crime, even holding a secret meeting at a hotel the night the acquisition was announced to devise their cover-up plan. This kind of dishonesty is profitable only in the short run, ultimately leading to arrest and prosecution.”
FBI Assistant Director-in-Charge George Venizelos said: “The defendants bought SPSS stock and options before a leaked acquisition by IBM, violating the law and breaching their duty, as alleged. When Durant and Payton were asked about their trades in an internal investigation, they doubled down and lied. Today they find themselves under arrest. The integrity and fairness of our financial markets are paramount. It’s a matter of national security. We will police this type of illegal behavior and make as many arrests as necessary until people stop cheating and ripping off others to get ahead.”
In a separate action, the U.S. Securities and Exchange Commission (“SEC”) announced civil charges against DURANT and PAYTON.
The following allegations are based on the Indictment unsealed today in Manhattan federal court:
The Inside Information concerning IBM’s acquisition of SPSS 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 its market price, with his close friend, Trent Martin, a former research analyst at an international financial services firm. The information was shared in confidence and, based on their longstanding history of sharing confidences, Attorney-1 expected that Martin would not share the information or use it to trade.
However, in June and July 2009, Martin bought SPSS common stock and call option contracts based on the Inside Information he was given by Attorney-1 and, in turn, shared the tip with his roommate, Thomas Conradt, who worked as a stock broker at Securities Trading Firm-1. In July 2009, Conradt passed along the tip to DURANT and PAYTON, his co-workers at Securities Trading Firm-1, who then bought SPSS call options based on the Inside Information. When IBM announced its acquisition of SPSS on July 28, 2009, the share price of SPSS common stock rose by 41% in one day. Thereafter, DURANT, PAYTON, Martin, Conradt and David Weishaus, whom Conradt also tipped, sold their SPSS positions, yielding total profits worth hundreds of thousands of dollars.
After IBM announced its acquisition of SPSS, DURANT and PAYTON took steps to conceal their illegal insider trading activity. On the evening the IBM/SPSS transaction was announced, DURANT and PAYTON met Conradt, Weishaus, and another co-conspirator at a hotel in Manhattan. At that meeting, DURANT, PAYTON, and the others discussed their trading in SPSS securities and how much money they made. When they were all together, DURANT suggested that if anyone asked why they had traded in SPSS securities, they should simply say that they liked technology stocks. Thereafter, prior to the sale of his call options, PAYTON transferred his options from securities accounts at Securities Trading Firm-1 to two securities accounts that he opened at a different brokerage firm. In doing so, PAYTON falsely informed the new brokerage firm during a recorded telephone call that he was a “self-employed real estate consultant,” rather than a stock broker at Securities Trading Firm-1. In that call, a representative from the new brokerage firm specifically informed PAYTON that if he worked at a broker/dealer, duplicate account statements might have to be sent to his employer. Nevertheless, PAYTON did not inform the new brokerage firm that he worked at Securities Trading Firm-1. Later, in November 2009, when Securities Trading Firm-1 conducted an investigation into the trading activity of DURANT and PAYTON in SPSS, both of them offered cover stories for their SPPS trading and neither indicated that he had heard about SPSS from, or spoken about the company with, Conradt, Weishaus, or another co-conspirator.
DURANT, 37, of New York, New York, has been charged with one count of conspiracy to commit securities fraud and two counts of securities fraud (Count Two and Three). PAYTON, 38, also of New York, New York, has been charged with one count of conspiracy to commit securities fraud and three counts of securities fraud (Count Four through Six). 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 Six each carry a maximum potential penalty of 20 years in prison and a maximum fine of $5 million. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.
Martin, Conradt, and Weishaus have previously pled guilty.
Mr. Bharara praised the investigative work of the FBI. He also thanked SEC for its assistance in the case.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 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 the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Telemachus P. Kasulis and John T. Zach 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.
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