U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21981 / May 26, 2011
Securities and Exchange Commission v. Donald L. Johnson, Defendant, and Dalila Lopez, Relief Defendant, Civil Action No. 11-CV-3618 (VM) (S.D.N.Y.)
SEC CHARGES FORMER NASDAQ MANAGING DIRECTOR WITH INSIDER TRADING
The Securities and Exchange Commission filed a civil injunctive action today in the United States District Court for the Southern District of New York charging Donald L. Johnson, a former managing director of The NASDAQ Stock Market, with multiple instances of insider trading.
According to the SEC’s complaint, Johnson held various positions at the NASD and NASDAQ for 20 years, until his retirement from NASDAQ in September 2009. From at least January 2000 to October 2006, Johnson worked in NASDAQ’s Corporate Client Group (CCG). He then transferred to the Market Intelligence Desk, a specialized department within the CCG that provides issuers with general market updates, overviews of their company’s sector, and commentary regarding the factors influencing day-to-day trading activity in their stocks.
The SEC alleges that, through his positions in the CCG and Market Intelligence Desk, Johnson had frequent and significant interactions with senior executives of NASDAQ-listed issuers, including CEOs, CFOs, and investor relations officers at his assigned companies. In those interactions, company executives routinely shared confidential information with Johnson regarding impending public announcements that could affect the price of their stocks. The executives who shared nonpublic information with Johnson did so based on the understanding that it would be kept confidential and that Johnson could not use the information for his personal benefit.
According to the SEC’s complaint, Johnson unlawfully traded in advance of nine announcements of material nonpublic information involving NASDAQ-listed companies from August 2006 to July 2009. Johnson took advantage of both favorable and unfavorable information that was entrusted to him in confidence by NASDAQ and its listed companies, shorting stocks on several occasions and establishing long positions in other instances. The complaint also states that Johnson often placed the trades directly from his work computer through an online brokerage account in his wife’s name. The SEC alleges that Johnson reaped illicit profits in excess of $755,000 from his illegal trading.
The SEC’s complaint charges Johnson with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest and a monetary penalty. Johnson’s wife Dalila Lopez is named as a relief defendant in the SEC’s complaint for the purpose of recovering illicit profits in her possession.
The SEC acknowledges the assistance of the Fraud Section of the U.S. Justice Department’s Criminal Division and the U.S. Postal Inspection Service. The SEC brought its enforcement action in coordination with these other members of the Financial Fraud Enforcement Task Force. The SEC also acknowledges FINRA and NASDAQ for their assistance in this investigation.