Former NASDAQ Managing Director Sentenced to 42 Months in Prison for Insider Trading
WASHINGTON – Donald Johnson, a former managing director of the NASDAQ Stock Market, was sentenced today to 42 months in prison for engaging in insider trading on multiple occasions based on material, non-public information he obtained in his capacity as a NASDAQ executive. Johnson was also ordered to forfeit $755,066.
The sentence was announced today by Assistant Attorney General Lanny A. Breuer of the Criminal Division and U.S. Attorney for the Eastern District of Virginia Neil H. MacBride.
Johnson, 57, of Ashburn, Va., was sentenced by U.S. District Judge Anthony J. Trenga in the Eastern District of Virginia. Johnson pleaded guilty on May 26, 2011, to one count of securities fraud. In pleading guilty, he admitted that, from 2006 to 2009, he purchased and sold stock in NASDAQ-listed companies based on material, non-public information, or inside information, that he obtained through his position as an executive at NASDAQ.
“Mr. Johnson’s insider status at one of our nation’s largest securities exchanges gave him access to highly sensitive information, which allowed him to anticipate the rise and fall of certain stocks,” said Assistant Attorney General Breuer. “Armed with this insider information, Mr. Johnson made investing look easy. He pocketed hundreds of thousands of dollars. But he did it by exploiting his trusted position to gain an unfair – and illegal – advantage in the market. Today’s sentence should leave no doubt in the minds of investors inclined to cheat that insider trading is a serious crime, with serious consequences.”
“Insider trading is an insidious crime that threatens the integrity of our financial markets, especially when the illegal trades are made by a trusted securities exchange official,” said U.S. Attorney MacBride. “Mr. Johnson used his position at NASDAQ to make quick profits from sensitive information companies provided him. He learned what every other trader on Wall Street must now realize: We’re watching, and when you’re caught you’ll face serious time in prison.”
According to court documents, from August 2006 to September 2009, Johnson was a managing director on NASDAQ’s market intelligence desk in New York. The market intelligence desk provides trading analysis and market information to the companies that list on NASDAQ. According to court documents, Johnson monitored the stock of companies traded on NASDAQ and offered NASDAQ-listed companies information and analyses concerning trading in their own stock. To enable him to perform these services, NASDAQ-listed companies routinely entrusted Johnson with material, non-public information about their company, including advance notice of announcements concerning earnings, regulatory approvals and personnel changes. Johnson admitted that he repeatedly used this information to purchase or sell short stock in various NASDAQ-listed companies shortly before the information was made public. He would then generate substantial gains by reversing those positions soon after the announcement. According to court documents, in order to conceal his illegal trading, Johnson executed these trades in a brokerage account in his wife’s name. Johnson failed to disclose this account to NASDAQ in violation of NASDAQ rules.
Johnson admitted in his plea that he made illegal purchases and sales of stock in NASDAQ-listed companies on at least eight different occasions. In addition, at sentencing, Johnson did not dispute that he engaged in insider trading on a ninth occasion, and the court ordered forfeiture based on proceeds from all nine instances. The companies whose securities he traded were Central Garden and Pet Co.; Digene Corporation; Energy Conversion Devices, Inc.; Idexx Laboratories Inc.; Pharmaceutical Product Development Inc.; and United Therapeutics Corporation. According to court documents, Johnson traded ahead of important announcements by these companies. For example, in November 2007, Johnson used inside information related to successful trial results for United Therapeutics’ drug Viveta (now called Tyvaso) to purchase shares of United Therapeutics before the trial results were announced. Soon after the announcement, Johnson sold the shares and gained more than $175,000 in profits. According to court documents, in July 2009, Johnson again improperly used inside information he obtained from United Therapeutics about the approval of its drug Tyvaso to purchase the company’s shares before the approval was announced. He sold the shares after the announcement and gained more than $110,000 in profits.
The Securities and Exchange Commission (SEC) has filed a related civil enforcement action against Johnson in the Southern District of New York.
This case is being prosecuted by Trial Attorney Justin Goodyear of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Raymond E. Patricco Jr., of the Eastern District of Virginia. The department recognizes the substantial assistance of the SEC, which conducted its own investigation and referred the conduct to the department. The department also recognizes the substantial assistance of the U.S. Postal Inspection Service, which conducted the criminal investigation. The Financial Industry Regulatory Authority also provided assistance. Brigham Cannon, formerly a Trial Attorney of the Criminal Division, also assisted with the investigation.
This prosecution is part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit: www.stopfraud.gov.