Former Managing Director Of Investment Bank Sentenced To 2 Years In Prison For Insider Trading Scheme
Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced that SEAN STEWART, a former senior investment banker at two different New York-based investment banks, was sentenced yesterday to 24 months in prison by U.S. District Judge Jed S. Rakoff for illegally tipping his father and co-defendant Robert Stewart with inside information about five health care company acquisitions before they were publicly announced. SEAN STEWART was convicted by a jury after a retrial that ended on September 23, 2019.
Manhattan U.S. Attorney Geoffrey S. Berman said: “As two separate juries have now found, Sean Stewart abused his positions at two investment banks, betrayed his employers by stealing his clients’ valuable secrets, and gave his father inside information to illegally profit in the stock market. To cover his tracks, Sean Stewart committed numerous acts of deception, including lying to bank compliance officials about his father’s trading activities in response to an inquiry from a financial regulator. Yesterday’s sentence, which requires Sean Stewart to return to prison for his insider trading crimes, is a reminder that no one is above the law and that serious breaches of trust and confidence like Sean Stewart’s will be met with serious punishment.”
According to the allegations contained in the Superseding Indictment and evidence presented at trial:
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 tips related to the acquisition of Kendle International Inc. by INC Research, LLC, which was announced publicly on May 4, 2011. SEAN STEWART represented Kendle in the confidential negotiations that led to the deal announcement. Based on inside information from SEAN STEWART, Robert Stewart purchased Kendle stock and passed the information to another individual to trade on his behalf, and earned several thousand dollars in profits after the acquisition of Kendle was publicly announced.
The second deal about which SEAN STEWART tipped Robert Stewart was the acquisition of Kinetic Concepts, Inc. (“KCI”), by Apax Partners, announced on July 13, 2011. Robert Stewart passed the inside information to another co-conspirator, Richard Cunniffe, to trade on Robert’s behalf. Robert Stewart and Cunniffe earned more than $100,000 in profits after the acquisition was publicly announced.
In the summer of 2011, SEAN STEWART learned that the Financial Industry Regulatory Authority (“FINRA”) was conducting an inquiry into suspicious trading in Kendle securities, including trading by Robert Stewart. SEAN STEWART at first falsely claimed to compliance officials at Investment Bank A that he did not recognize his father’s name on a list of individuals who traded prior to the public announcement of Kendle’s acquisition. After FINRA and compliance officials at Investment Bank A recognized the connection between SEAN STEWART and his father, SEAN STEWART told a series of lies to those compliance officials, to make it seem as if Robert Stewart had decided on his own initiative to invest in Kendle without the benefit of inside information.
In October 2011, SEAN STEWART joined an investment banking advisory firm headquartered in Manhattan (“Investment Bank B”) and was later promoted to managing director. During his tenure with Investment Bank B, SEAN STEWART provided his father with tips concerning nonpublic acquisition negotiations involving three more public companies: (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. As before, Robert Stewart passed the information to Cunniffe in order to place trades for the two of them.
During the course of the scheme, SEAN STEWART became aware that his father was having financial problems. Rather than loan his father money, SEAN STEWART gave his father stock tips so that his father could profit from the information that STEWART stole from Investment Bank A and Investment Bank B and their clients. In total, with respect to all five deals, Robert Stewart and Cunniffe earned profits of more than $1.1 million.
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In addition to his prison sentence, SEAN STEWART, 38, of North Merrick, New York, was sentenced to three years of supervised release. SEAN STEWART was ordered to report to prison on January 14, 2020.
Robert Stewart pled guilty on August 12, 2015, to one count of conspiracy to commit securities fraud and tender offer fraud and was sentenced to four years’ probation, with the first year to be served in home detention, and $150,000 in forfeiture.
Richard Cunniffe pled guilty on May 12, 2015, to one count of conspiracy to commit securities fraud and tender offer fraud, one count of conspiracy to commit wire fraud, three counts of substantive securities fraud, and one count of substantive tender offer fraud, and was sentenced to one year of probation, and $900,000 in forfeiture.
Mr. Berman praised the investigative work of the Federal Bureau of Investigation and also thanked the SEC, which has brought a civil action against SEAN STEWART.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorneys Richard Cooper and Samson Enzer are in charge of the prosecution.