The U.S. Securities and Exchange Commission Thursday charged a corporate insider from Los Altos, a stock research analyst and two others with insider trading. Together, they generated nearly $750,000 in illegal profits by trading in advance of four corporate news announcements, according to the SEC.
The SEC alleges that John Gray, then an analyst at Barclays Capital Inc., and his friend Christian Keller of Los Altos traded on confidential merger information that the 40-year-old Keller learned while working in finance at two Silicon Valley-based public companies. Gray and Keller attempted to conceal the trades by placing them in a brokerage account held in the name of Gray’s friend Kyle Martin, the SEC reported. Gray allegedly tipped a fourth participant, Aaron Shepard, with nonpublic information so that he could trade in advance of some of the corporate announcements.
“Gray and Keller tried to evade detection by trading in another person’s name, using prepaid disposable phones and making structured cash withdrawals to share profits,” said Jina L. Choi, director of the SEC’s San Francisco Regional Office, in a press release. “Despite their careful planning, we were able to detect the suspicious trading and effectively use our cooperation program to expose their nefarious scheme.”
Gray, Keller, Martin and Shepard have agreed to settle the charges by paying more than $1.6 million combined to settle the case – without admitting or denying the allegations – SEC officials said. Keller agreed to pay disgorgement of $52,000, prejudgment interest of $4,002.03 and a penalty of $417,468.73, which represents the total profits from the secret trades placed in Martin’s brokerage account. The settlements are subject to court approval. Keller also agreed to be barred from serving as an officer or director of a public company for 10 years.
According to the SEC’s complaint, filed in federal court in the Northern District of California, Gray was primarily responsible for placing the trades in Martin’s account. Gray and Martin placed additional trades in other accounts based on Keller’s confidential information that Gray shared with Martin. Gray provided Keller cash kickbacks from the trading profits.
The SEC alleges that Gray and Keller first traded on confidential merger information that Keller learned while employed as a financial analyst at Applied Materials Inc. They illegally traded ahead of the company’s acquisitions of Semitool Inc. in 2009 and Varian Semiconductor Equipment Associates in 2011. Keller left Applied Materials and joined Rovi Corp. in 2012 as vice president of investor relations and finance. The scheme continued as they used confidential information that Keller learned as an insider to profitably trade Rovi securities ahead of negative news announcements by the company about its 2012 first- and second-quarter financial results.
