A British national who resides primarily in the Bahamas and three of his associates were charged by the U.S. Securities and Exchange Commission (SEC) with insider trading. The investor allegedly provided nonpublic information to the others for the purpose of executing illegal trades, resulting in more than $500,000 in profits.
Joseph C. Lewis, majority owner of a biotechnology investment fund, regularly received "material nonpublic information" on the fund's portfolio companies, according to the SEC. Lewis tipped the information "to his then-girlfriend, Carolyn W. Carter, as well as his two private pilots, Patrick J. O’Connor and Bryan L. Waugh, so that each would use this information to execute trades," the SEC states in a July 26 press release. Carter, O’Connor and Waugh were also charged with using the information "to trade and reap combined profits of more than $545,000."
“We allege that Mr. Lewis had access to material nonpublic information by virtue of his position as a prominent investor and breached a duty of confidentiality by tipping his close associates with that information,” Gurbir Grewal, director of the SEC’s Division of Enforcement, said in the release.
Lewis allegedly breached confidentiality by tipping Carter on two occasions and O’Connor and Waugh on one occasion between July and October 2019, according to the release.
The SEC alleges that in July 2019, Lewis learned that a portfolio company was planning a capital raise, which often led to a rise in share prices. Lewis met with Carter the same day, according to the release, and shortly after the meeting, Carter purchased more than $700,000 worth of the portfolio company's common stock. Carter profited by more than $172,000 the next day, when the news was publicly announced, the release reports.
In September 2019, Lewis allegedly obtained material nonpublic information about another portfolio company that would present positive clinical trial results at an upcoming conference. After Lewis received the information, Carter, O’Connor and Waugh bought the company's common stock.
"In O’Connor and Waugh’s case, Lewis allegedly gifted this information to them as a substitute for a formal retirement plan and loaned each $500,000 to execute the trades," the SEC states in the release.
The company's share price increased by 16.7% upon the company’s public announcement of the positive clinical trial data in October 2019, the release reports, and Carter, O’Connor and Waugh together profited more than $373,000.
The SEC’s complaint charges all four defendants with violating the antifraud provisions of the federal securities laws, the release reports. The SEC is seeking permanent injunctive relief and civil penalties from all defendants, as well as "disgorgement of ill-gotten gains" with prejudgment interest from Carter, O’Connor and Waugh. O’Connor’s spouse, Jean J. O’Connor, is named as a relief defendant in the SEC’s complaint, the release reports.
The U.S. Attorney's Office for the Southern District of New York has also announced criminal charges against Lewis, O’Connor, and Waugh, according to the release.
“When insiders like Lewis take advantage of their access to such information, it erodes public trust and confidence in the fair and efficient operation of our markets," Grewal said in the release. "That’s why we will continue to use all the tools at our disposal to hold accountable those who abuse their positions for personal benefit and the unlawful enrichment of others.”
