Investment Adviser Charged In Manhattan Federal Court With Insider Trading
Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the arrest of DAVID HOBSON, who served as an investment adviser in the Providence, Rhode Island, offices of two different national broker-dealer and investment advisers (“Brokerage Firm-1” and “Brokerage Firm-2”), for engaging in a scheme to commit insider trading in connection with deals involving a pharmaceutical company (the “Pharma Company”) at which MICHAEL MACIOCIO, HOBSON’s friend and client, worked. In addition, Mr. Bharara announced the unsealing of charges against MACIOCIO, who pled guilty and admitted to his participation in the scheme in May. MACIOCIO, who had been employed by the Pharma Company, regularly possessed material, nonpublic information (“Inside Information”) concerning pending acquisitions and transactions under consideration by the Pharma Company. From at least 2008 through April 2014, MACIOCIO breached his duty of confidentiality to the Pharma Company by providing Inside Information about potential acquisitions and transactions to his friend and long-time broker, HOBSON. HOBSON, in turn, used the Inside Information to execute profitable securities trades for himself, for MACIOCIO, and for other clients of HOBSON’s.
HOBSON was arrested this morning in Providence, Rhode Island, and was presented today before a magistrate judge in Providence. The case against HOBSON and MACIOCIO is before United States District Judge Laura Taylor Swain. On Friday, May 20, 2016, MACIOCIO pled guilty before United States Magistrate Judge Barbara Moses to an Information charging him with conspiracy to commit securities fraud, conspiracy to commit wire fraud, and securities fraud.
In a separate action, the Securities and Exchange Commission (“SEC”) filed civil charges against HOBSON and MACIOCIO.
U.S. Attorney Preet Bharara said: “As alleged, Michael Maciocio abused his position at a major pharmaceutical company to feed insider information to his friend and broker, David Hobson, who allegedly helped both benefit from trades based on that illegal edge. Unfortunately, illegal insider trading remains a blight on our securities markets and we will continue to work with the FBI to investigate and prosecute it.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “Having material, nonpublic information on public companies is a trusted privilege that should be used to carry out business matters, not used as advantage on which to trade and profit. As alleged, Michael Maciocio used his position at a pharmaceutical company to share nonpublic information with his friend and long-time broker, David Hobson. Hobson allegedly used traded on the information, for both Maciocio and other clients, profiting all parties $370,000. Keeping our markets fair for all investors remains a top priority for the FBI and we will continue to work with our law enforcement partners to bring charges against those who use illegal and unfair advantages in our securities markets.”
According to the allegations in the charging documents unsealed today in Manhattan federal court, including the Information and Indictment, and statements made in court proceedings:
From in or about May 2008 through in or about April 2014, MACIOCIO and HOBSON participated in a scheme to commit insider trading in advance of and in connection with acquisitions and transactions under consideration by the Pharma Company. MACIOCIO and HOBSON were childhood friends and HOBSON had served as MACIOCIO’s investment adviser and broker for many years.
MACIOCIO learned about the impending transactions through his role as a Master Planner in the Active Pharmaceutical Ingredient Supply Chain Group at the Pharma Company. In that role, MACIOCIO was tasked with evaluating manufacturing demands and capacity within the Pharma Company and was consulted about potential acquisitions to assist in determining whether the Pharma Company would be able to manufacture any new product in-house. Although MACIOCIO was not typically provided with the name of the target acquisition, he used the Inside Information he received – including the Pharma Company’s code name of the acquisition, the drug indication, the dosage, the phase of any clinical trial, and the chemical structure of the drug – to uncover the true identity of the target company. He was at times aided in this task by HOBSON.
Having learned the Inside Information about these impending transactions, MACIOCIO, in breach of fiduciary duties and other duties of trust and confidence owed to the Pharma Company, traded on his own behalf and tipped HOBSON so that HOBSON could use the information to trade for both himself and for MACIOCIO. HOBSON also used the Inside Information to trade in other of his clients’ accounts, first at Brokerage Firm-1 and later at Brokerage Firm-2.
HOBSON used the Inside Information that he received from MACIOCIO to make profitable trades in, among other securities: Medivation, Inc., Ardea Biosciences, Inc., and Furiex Pharmaceuticals, Inc. As a result of the scheme, HOBSON reaped approximately $180,000 in ill-gotten gains for himself, $40,000 for MACIOCIO, and nearly $150,000 for certain of HOBSON’s other clients.
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HOBSON, 47, is charged with one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud, and two counts of securities fraud. Count One carries a maximum sentence of five years in prison. Counts Two through Four each carry a maximum sentence of 20 years in prison. The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense.
On May 20, 2016, MACIOCIO, 46, pled guilty before Judge Moses to one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud, and two counts of securities fraud. Count One carries a maximum sentence of five years in prison. Counts Two through Four each carry a maximum sentence of 20 years in prison. The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentences for the defendants will be determined by the judge.
Mr. Bharara praised the work of the FBI, and thanked the SEC.
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 Aimee Hector and Rebecca Mermelstein are in charge of the prosecution.
The allegations contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
 As the introductory phrase signifies, the entirety of the text of the Indictment and the descriptions of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.