SEC Charges Advisory Firm Owner and Stockbroker With Insider Trading Ahead of Merger Announcement by Pharmaceutical Firms
The Securities and Exchange Commission today charged the owner of a New York-based advisory firm with insider trading in his own account and client accounts based on non-public information in advance of a merger announcement by pharmaceutical companies.
The SEC alleges that Tibor Klein, who lives on Long Island and is president of Klein Financial Services, learned confidential information about Pfizer Inc.’s planned acquisition of King Pharmaceuticals. He misappropriated the information and traded in advance of the public announcement for illicit profits of more than $300,000 for himself and his clients.
The SEC also charged Klein’s close friend Michael Shechtman, a stockbroker living in South Florida who was tipped by Klein and traded on the non-public information for more than $100,000 in illegal profits.
“As securities industry professionals, Klein and Shechtman clearly know the difference between legal and illegal trading,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Instead of playing by the rules, they chose to exploit non-public information for an easy payday, but they didn’t plan on getting caught by the SEC.”
According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, Klein learned material, non-public information about the impending merger in August 2010 from one of his clients – an attorney who works on matters for King Pharmaceuticals. On August 16 – the first day that the markets opened after he learned the confidential information – Klein began purchasing large amounts of King Pharmaceuticals’ stock. Klein had not purchased so many securities of an individual stock for so many clients in such a short time period in 2010 as he did when he made these purchases.
The SEC alleges that Klein then went one step further and tipped his best friend, Shechtman, with the non-public information about King Pharmaceuticals. Klein and Shechtman speak often but rarely more than once a day. But Klein called Shechtman six times on August 16, when Shechtman submitted an application to open an options trading account and handwrote “Please expedite ASAP” at the top of the form. Shechtman had never before traded in options. On August 18, Klein called Shechtman 11 more times as Shechtman purchased 2,500 shares of King Pharmaceuticals stock and 300 call options in his personal account, and 2,400 shares in his wife’s Roth IRA account.
According to the SEC’s complaint, the public announcement was made on Oct. 12, 2010. King Pharmaceuticals stock subsequently rose 39 percent and trading volume increased by more than 12,000 percent from the previous day. Following the announcement, Klein sold his King Pharmaceuticals stock and generated profits of $328,375.02 for himself and his clients. Shechtman sold his shares and his wife’s share in King Pharmaceuticals stock and options for profits of $109,040.53.
The SEC’s complaint charges Klein and Shechtman with violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3. The SEC seeks disgorgement of ill-gotten gains, financial penalties, and permanent injunctive relief against Klein and Shechtman to enjoin them from future violations of the federal securities laws.
The SEC’s investigation was conducted by Rachel K. Paulose and supervised by Elisha L. Frank in the Miami Regional Office. The SEC’s litigation will be led by Robert K. Levenson. The SEC appreciates the assistance of the Financial Industry Regulatory Authority and the Options Regulatory Surveillance Authority.