Father Of Investment Banker Sentenced In Manhattan Federal Court For Million-Dollar Insider Trading Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that ROBERT STEWART, a/k/a “Bob,” was sentenced to four years’ probation, with the first year to be served in home detention, and $150,000 in forfeiture for conspiring to use inside information provided by Sean Stewart, the defendant’s son and co-conspirator, to trade and cause another to trade in the securities of five different health care companies. The insider trading conspiracy spanned over four years and generated profits of approximately $1.16 million, with STEWART himself reaping approximately $150,000 of those gains. ROBERT STEWART pled guilty on August 12, 2015, to one count of conspiracy to commit securities fraud and fraud in connection with a tender offer before the Honorable James C. Francis, United States Magistrate Judge. U.S. District Court Judge Laura Taylor Swain imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “Robert Stewart received nonpublic mergers and acquisitions information from his investment banker son, and then used this illegal edge to earn substantial trading profits. Stewart has admitted to violating federal securities laws and now stands a convicted felon.”
According to the Complaint, Indictment, other documents filed in the case, and statements made in open court:
In early 2011, Sean Stewart, who at the time held the position of Vice President in the Healthcare Investment Banking Group of a global bank headquartered in Manhattan (“Investment Bank A”), began tipping his father, ROBERT STEWART, with nonpublic information about upcoming mergers and acquisitions. The first of these deals involved the acquisition of Kendle International Inc. by INC Research, LLC, which was announced publicly on May 5, 2011. Sean Stewart worked on the deal, representing Kendle. ROBERT STEWART made about $7,900 in profits on purchases of Kendle stock executed in February and March of 2011. When questioned about his Kendle trades by the Securities and Exchange Commission in May 2013, ROBERT STEWART reported that he used the proceeds of those trades to pay expenses related to Sean Stewart’s June 2011 wedding.
The second deal about which Sean Stewart tipped ROBERT STEWART was the acquisition of Kinetic Concepts, Inc. (“KCI”) by Apex Partners, announced on July 13, 2011. Although ROBERT STEWART purchased some stock in KCI based on Sean Stewart’s tip, he sold that stock before the acquisition was announced, around the same time that Sean Stewart learned the Financial Industry Regulatory Authority was conducting an inquiry into ROBERT STEWART’s Kendle trading.
Also around this time, in the spring of 2011, ROBERT STEWART expressed a concern to Richard Cunniffe, a co-conspirator and cooperating witness, that ROBERT STEWART was “too close to the source” to be trading KCI stock in his own account, and asked Cunniffe to make purchases of KCI call options for ROBERT STEWART in Cunniffe’s brokerage account. Cunniffe agreed to do so, and also mirrored for his own benefit the KCI trades that ROBERT STEWART was directing.
When the KCI/Apax Partners deal was announced, ROBERT STEWART and Cunniffe reaped profits totaling approximately $107,790. Around this time, ROBERT STEWART told Cunniffe that the source of the KCI tip and the earlier Kendle tip had been ROBERT STEWART’s son. Later, around the spring of 2012, ROBERT STEWART clarified for Cunniffe that the son in question was Sean Stewart, who worked on the “sell side” on Wall Street.
In October 2011, Sean Stewart left Investment Bank A. A few months later, he joined an investment banking advisory firm headquartered in Manhattan (“Investment Bank B”) as a Managing Director.
During Sean Stewart’s tenure with Investment Bank B, based on tips concerning nonpublic acquisition-related information supplied by Sean Stewart, ROBERT STEWART had Cunniffe conduct options trading in advance of the public announcements of three more deals: (1) the acquisition of Gen-Probe Inc. by Hologic, Inc., announced on April 30, 2012; (2) the acquisition, by tender offer, of Lincare Holdings Inc. by Linde AG, announced on July 1, 2012; and (3) the acquisition of CareFusion Corp. by Becton, Dickinson & Co. (“Becton”), announced October 4, 2014. Investment Bank B represented Hologic in connection with its acquisition of Gen-Probe; Linde in connection with its acquisition of Lincare; and CareFusion in connection with its acquisition by Becton. The profits that ROBERT STEWART and Cunniffe reaped from illegal insider trading in advance of the announcements of these three deals totaled over $1 million.
To try to avoid detection for their crimes, ROBERT STEWART and Cunniffe refrained from speaking explicitly about their trading over the phone or via e-mail, sometimes using codes to hide their criminal activity from authorities who might be listening to their phone calls or reading their email. Other steps ROBERT STEWART and Cunniffe took to avoid detection included trying to discuss their trading at face-to-face meetings and adopting a profit-splitting mechanism that had Cunniffe paying ROBERT STEWART his portion of the illegal proceeds in small increments, over time, typically in cash.
In March and April of 2015, Cunniffe recorded meetings he had with ROBERT STEWART. During one such meeting, ROBERT STEWART accepted a payment of $2,500 cash from Cunniffe, which was the balance of the proceeds owed to ROBERT STEWART for profitable trading executed in Cunniffe’s account in advance of the CareFusion acquisition announcement. Also during this meeting, ROBERT STEWART admitted that Sean Stewart once chastised him for failing to make use of a tip, saying, “I can’t believe I handed you this on a silver platter and you didn’t invest in it.”
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ROBERT STEWART, a/k/a “Bob,” 61, of North Merrick, New York, was sentenced to four years’ probation, with the first year to be served in home detention, $150,000 in forfeiture, and a $100 special assessment.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and also thanked the Securities and Exchange Commission, which has brought civil actions against the defendant.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Sarah E. McCallum and Brooke E. Cucinella are in charge of the prosecution.