The U. S. Securities and Exchange Commission (SEC) filed civil charges against David Cooper, a securities brokerage firm registered representative, John Lowe Jr., Randy Grewal, and Richard Ringel, three securities traders, and their companies, for engaging in a long-running illegal inside trading scheme. The illegal insider trading scheme, as alleged by the SEC, involved a quid-pro-quo economic arrangement amongst the participants.
The SEC’s complaint, filed in the United States District Court for the Eastern District of New York, charges the Defendants with violating the antifraud provisions of the federal securities laws, to wit: Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.
The SEC’s enforcement complaint alleges that the defendants shared information obtained from an underwriter about the timing and/or price of numerous follow-on offerings to short the stocks prior to public release of the information.
A few key concepts defined and explained:
An underwriter is a person or firm that purchases stock from an issuing company with a view to resell the stock to the public. The underwriter then contracts with a brokerage firm in a selling syndicate arrangement to resell the stock.
A follow-on offering is the issuance of additional shares by a publicly traded company. Follow-on offerings typically dilute existing shareholders’ percentage ownership of the companies that, in turn, cause the companies’ price to decline.
Short selling is the process of borrowing a stock from a third-party, selling it, and hoping that it falls in value so you can purchase it at a later time for less, thus making a profit based upon the sale price and purchase price.
Now back to the illegal insider trading scheme, particularly the mechanics of the fraud:
Employees of underwriters told the brokerage firm about the anticipated follow-on offerings. Lowe, brokerage firm employee, (and another employee, who has since left the brokerage firm, and is not named as a defendant in the case), passed that material, non-public information on to Cooper and Ringel, who both held accounts with the brokerage firm. Cooper also passed that information on to his friend Grewal. All three shorted the stock prior to the public announcements of the offerings.
In consideration for the tip of the material, non-public information from Cooper, Lowe and Ringel purchased follow-on stock through Lowe’s brokerage firm so Lowe could receive a selling commission from the underwriters. This scheme was repeated several times over a six-year period.
Per the SEC’s lawsuit, Lowe and his two companies profited approximately $900,000 from at least 200 illegal insider trades. Ringel and his company also profited from more than 300 trades for at least $1,500,000, and Grewal and his company profited from more than 90 trades for at least $140,000. The brokerage firm earned approximately $1 million in sales credits from follow-on offerings for which the brokerage firm was part of the selling syndicate. Cooper received a substantial portion of that compensation.
The SEC complaint seeks permanent injunctive relief, disgorgement with prejudgment interest, and civil penalties against the defendants and the companies through which they conducted the alleged fraud.
Based upon the SEC’s serious and detailed allegations, the amounts of profits made, the long-running nature of the scheme and the fact that at least one of the defendants was securities registered, it comes as no surprise that the U.S. Attorney’s Office for the Eastern District of New York also announced parallel criminal charges against Cooper, Ringel, Lowe and Grewal.
Charged in an Insider Trading Scheme?
SEC insider trading lawyer David Chase, Esq. of the Law Firm of David R. Chase, has successfully represented individuals in SEC insider trading investigations around the country for over two decades after having held the position of Senior Counsel in the SEC’s Enforcement Division. If you have received a SEC subpoena and are looking for advice from an experienced sec defense lawyer, contact David at: 800-760-0912 or e-mail him at: david@davidchaselaw.com. Visit the Firm’s website for more information on how to beat an insider trading investigation, as well as the firm’s numerous prior insider trading successful defense outcomes at: www.davidchaselaw.com.
