SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17154 / September 27, 2001
Securities and Exchange Commission v. Brendan J. Sterne, Kent Alexander Walker, and Ryan Campbell Doersam, Civil Action No. 01 CV 8729 (S.D.N.Y.) (filed September 27, 2001)
SEC Files Insider Trading Charges Against Three Tippees of a Former Salomon Smith Barney Investment Banking Analyst
The Commission today filed a civil complaint in the United States District Court for the Southern District of New York against Brendan Sterne, Kent Walker, and Ryan Doersam. The complaint alleges that the defendants collectively engaged in repeated acts of insider trading involving the securities of nine publicly traded companies over a nine-month period, resulting in total illegal profits of $62,436.83. According to the complaint, each of the defendants was separately approached by Michael A. Petrescu-Comnene ("Petrescu-Comnene"), whom each knew from either high school or college, and who then worked as an analyst in the investment banking division of Salomon Smith Barney, Inc. ("Salomon"). Each defendant agreed to trade securities in his own account based on information to be provided by Petrescu-Comnene and, in return, agreed to give Petrescu-Comnene half of his trading profits. Petrescu-Comnene then tipped each of the defendants with material, nonpublic information about proposed mergers or acquisitions involving Salomon clients. Each of the defendants knew that Petrescu-Comnene worked at Salomon and knew or was reckless in not knowing that Petrescu-Comnene had improperly provided them with information.
With respect to Sterne, age 25, the Commission's complaint specifically alleges that he received illegal tips and profitably traded the securities of eight companies beginning in December 1999. Petrescu-Comnene first tipped Sterne prior to the December 20, 1999 public announcement that MMI Companies, Inc., a Salomon client, would be acquired by The St. Paul Companies. Based on this tip, Sterne purchased 1500 shares of MMI stock, one business day prior to the announcement, and quickly sold his position, making a profit of $7,125. Following the MMI transaction, Sterne profitably traded the securities of seven other companies after receiving tips from Petrescu-Comnene. Sterne made his largest profit by purchasing 20 Associates First Capital Corp. ("AFS") call options the day before the September 6, 2000 announcement that Citigroup Inc. ("Citigroup"), Salomon's parent, had agreed to purchase AFS in an all-stock transaction valued at $31.1 billion. The public announcement resulted in a 38 percent increase in the underlying price of AFS stock and resulted in profits to Sterne of $16,125. All told, Sterne's profits totaled $28,712.
With respect to Walker, age 25, the Commission's complaint alleges that he profitably traded the securities of two public companies while in possession of material, nonpublic information provided by Petrescu-Comnene. Walker made total profits of $25,849.83. He made his largest profits after being tipped by Petrescu-Comnene about the AFS transaction. As a result of this illegal tip, Walker purchased 30 AFS call options and liquidated his position following the public announcement, making a one-day profit of $24,750. In addition to the AFS transaction, Walker received another tip from Petrescu-Comnene and made additional profits of $1,099.83.
With respect to Doersam, age 24, the Commission's complaint specifically alleges that Petrescu-Comnene tipped Doersam prior to the March 21, 2000 public announcement that Travelers Property Casualty Corp. ("Travelers") would be acquired by Citigroup in a cash tender offer worth $2.4 billion. Based on this tip, and while in possession of material, nonpublic information concerning the Travelers acquisition, Doersam purchased 15 Travelers call options on the morning of the announcement. When the merger was announced later that day, Travelers stock price increased approximately 21 percent. Two days later, Doersam sold his Travelers options, making a profit of $7,875.
The Commission's complaint further alleges that the defendants unsuccessfully took steps to avoid detection. For example, Sterne bought Petrescu-Comnene a pre-paid cellular phone so that Petrescu-Comnene could call him in a manner designed to conceal their contacts. Also as part of the scheme, Petrescu-Comnene and at least one of the defendants arranged to purchase small blocks of securities in the hopes of passing "below the radar screen" of law enforcement officials.
Simultaneous with the filing of the complaint, each of the defendants has consented, without admitting or denying the allegations of the Commission's complaint, to the entry of a final judgment that permanently enjoins him from violating the antifraud provisions contained within Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 promulgated thereunder. Doersam also consented, without admitting or denying the allegations of the complaint, to the entry of a final judgment which permanently enjoins him from violating Section 14(e) of the Exchange Act and Rule 14e-3 promulgated thereunder. In addition, as part of his settlement, Doersam has agreed to be suspended from associating with a broker/dealer for a period of 12 months.
In addition, each of the defendants has consented to a judgment requiring disgorgement of his trading profits plus prejudgment interest. Pursuant to the terms of their settlement agreements, Sterne and Walker have consented to pay disgorgement and prejudgment interest in the amounts of $25,402.02 and $22,336.49, respectively. Sterne and Walker will also pay civil penalties of $5,000 and $4,500, respectively, provided that no greater penalty is imposed due to their demonstrated financial inability to pay. Similarly, Doersam has consented to the entry of a final judgment that orders him to pay disgorgement and prejudgement interest in the amount of $8,574.89, but which waives payment of that amount and does not impose a penalty based on his demonstrated inability to pay.
The Commission previously filed insider trading charges against Petrescu-Comnene on October 13, 2001. SEC v. Michael Andrew Petrescu-Comnene, Civil Action No. 00CIV. 7825 (S.D.N.Y.); Litigation Release No. 16765 (October 13, 2000). On the same day that the Commission filed that action, the U.S. Attorney for the Southern District of New York announced that Petrescu-Comnene had been arrested and charged with securities fraud and conspiracy to commit securities fraud. On May 14, 2001, a final judgment was entered in the Commission's action against Petrescu-Comnene. The final judgment permanently enjoined Petrescu-Comnene from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and ordered him to pay disgorgement in the amount of $18,000. On May 16, 2001, the Commission also entered an administrative order permanently barring Petrescu-Comnene from the securities industry. In the Matter of Michael Andrew Petrescu-Comnene, Administrative Proceeding File No. 3-10484 (May 16, 2001); Litigation Release No. 17004 (May 16, 2001).
The Commission wishes to thank the United States Attorney's Office for the Southern District of New York and the Chicago Board Options Exchange for their cooperation and assistance in this matter.