Trent Martin was employed at the time of the merger with the Connecticut office of an international broker-dealer and received information about the pending $1.2 billion deal from a close friend who was an associate at the law firm working for IBM. The charges against Martin, unveiled Wednesday, Dec. 26, follow accusations brought Nov. 29 by the government against two retail stock brokers who illegally traded on information they received from Martin. On Thursday, the SEC brought additional insider trading charges against those men, Thomas Conradt and David Weishaus.
The associate from whom Martin received the confidential information has not been accused of any wrongdoing. According to the complaint, the lawyer, who was assigned to work on the merger, did not make securities trades in either IBM or SPSS stock and told Martin details on May 31, 2009, about the pending transaction because the close friends routinely confided to each other about their jobs.
According to the SEC, the lawyer and Martin met in 2008 through mutual friends and quickly became close. Both were young professionals living in a foreign country and saw each other regularly.
"The attorney sought moral support, reassurance, and advice when he privately told Martin about his new assignment working on the IBM-SPSS acquisition," the SEC said in a press statement describing the charges against Martin and the others. "The lawyer disclosed to Martin such details as the anticipated transaction price and the identities of the acquiring and target companies while he was describing the magnitude of the assignment."
IBM's eventual $50 per share offer was a substantial premium to the recent trading range of SPSS shares, which opened at $35 when the deal was announced July 28, 2009.
The investigation continues into the insider trading scheme, which garnered more than $1 million in illegal profits, and more charges are possible. The complaint against Martin lists three unnamed registered representatives employed at the same brokerage firm as Conradt and Weishaus and to whom Conradt relayed the confidential details about the pending SPSS takeover. Those unnamed registered representatives pocketed the vast majority of the illegal trading profits, with their ill-gotten gains totaling more than $893,000.
Martin's illegal profits amounted to just over $7,600. Conradt and Weishaus pocketed more than $2,500 and $127,000, respectively.
An SEC spokeswoman would not comment on the likelihood of charges being brought against the three unnamed registered representatives.
Martin is an Australian national and fled the U.S. to Australia after learning about the SEC's investigation. He subsequently relocated to Hong Kong. Martin was arrested there Saturday at the request of U.S. authorities. Conradt and Weishaus pleaded not guilty on Dec. 7 and are scheduled to appear next before U.S. District Judge Andrew L. Carter Jr. on Jan. 18.
"Martin is a licensed professional who knowingly disregarded insider trading laws to enrich himself, and then fled the United States when he learned of our investigation," said Daniel M. Hawke, director of the SEC's Philadelphia regional office. "Martin could run but he could not hide, as the long arm of the SEC will extend to those who flee the United States hoping to avoid the consequences of their unlawful conduct."
According to the SEC's complaint, Martin attempted to purchase SPSS common stock on the very first business day after his friend revealed the nonpublic information to him. His first three orders were canceled because he did not have sufficient funds in the account to make the purchases, but completed the purchases of SPSS shares after wiring $50,000 from his checking account into his brokerage account.
The charges carry a maximum potential penalty of 20 years in prison and a maximum fine of $5 million. The SEC also is seeking disgorgement of ill-gotten gains with prejudgment interest and financial penalties, and a permanent injunction against the brokers.
The U.S. investigation, which is continuing, is being conducted by Mary P. Hansen, A. Kristina Littman and John S. Rymas in the SEC's Philadelphia regional office. G. Jeffrey Boujoukos and Catherine E. Pappas in the Philadelphia office are handling the litigation for the SEC. The Justice Department's portion of the investigation is being handled by the agency's 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 SEC said it has received assistance from the Options Regulatory Surveillance Authority, the New Zealand Securities Commission, and the Australia Securities and Investments Commission. The SEC also acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation.
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