Investment Bank Director 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 STEVEN MCCLATCHEY, a director at an investment bank in Manhattan (the “Investment Bank”), on charges of participating in a scheme to commit insider trading in connection with potential mergers and acquisitions (“M&A”) in which the Investment Bank was involved. In addition, charges against GARY PUSEY were unsealed. PUSEY pled guilty and admitted to his participation in the scheme last week.
MCCLATCHEY was arrested this morning in Long Island, New York, and will be presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Kevin Nathaniel Fox. On Friday, May 27, 2016, PUSEY pled guilty before U.S. District Judge Katherine Polk Failla to conspiracy, securities fraud, and wire fraud.
In a separate action, the Securities and Exchange Commission (“SEC”) filed civil charges against MCCLATCHEY and PUSEY.
U.S. Attorney Preet Bharara said: “Insider trading continues to tarnish our securities markets. As alleged, Steven McClatchey abused his position at a major investment bank, feeding sensitive information about mergers and acquisitions to his close friend, Gary Pusey, who in turn traded on that material, nonpublic information. McClatchey did not tip Pusey for free, allegedly receiving cash kickbacks and home renovations from Pusey in exchange. A free and fair marketplace is what securities investors deserve and is what we seek to enforce through prosecutions like this one.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “As alleged, Steven McClatchey violated his confidentiality duty at an investment bank when he shared insider material information with his boat dock buddy, Gary Pusey, who ultimately used the information to make trades. McClatchey allegedly benefited from thousands of dollars cash payments and home repairs. Investing in our markets should be fair to all investors with equal access to information, not boat-side chats that give certain investors advantage. The FBI will continue to work with our partners to ensure our markets are fair and equitable to all.”
According to the allegations in the charging documents unsealed today in Manhattan federal court, including the Complaint and Information, and statements made in court proceedings:
MCCLATCHEY, who had served as a director at the Investment Bank since at least 2008, routinely possessed material, nonpublic information (“Inside Information”) concerning pending mergers and acquisitions in which the Investment Bank was involved. Indeed, among MCCLATCHEY’s responsibilities at the Investment Bank was the tracking of the status of all such pending transactions and the likely date on which such transactions would be publicly announced. MCCLATCHEY breached his duty of confidentiality to the Investment Bank and to its clients by providing Inside Information about pending M&A transactions to his close friend, PUSEY. PUSEY, in turn, used the Inside Information to execute profitable securities trades ahead of at least 10 separate M&A announcements.
Specifically, from February 2014 through September 2015, MCCLATCHEY and PUSEY participated in a scheme to commit insider trading in advance of and in connection with more than 10 separate mergers and acquisitions. MCCLATCHEY and PUSEY were close friends who owned boats docked in a Long Island marina and who spent most Saturdays on their boats, at the marina, or playing pool and watching sports.
MCCLATCHEY learned about the deals as part of his employment with the Investment Bank, which generally advised either (i) the company to be acquired in the transaction; (ii) the acquiring company; or (iii) a company which ultimately lost a bid to acquire the company involved in the transaction.
Having learned the Inside Information about these impending transactions, MCCLATCHEY, in breach of fiduciary duties and other duties of trust and confidence owed to the Investment Bank and its clients, tipped PUSEY so that PUSEY could use the information to trade and with the expectation that PUSEY would confer a benefit upon MCCLATCHEY. Among the benefits that MCCLATCHEY received as part of the insider trading scheme were thousands of dollars of cash payments by PUSEY and the provision of home renovation services.
PUSEY used the Inside Information that he received from MCCLATCHEY to make profitable trades in, among other securities: Forest Oil Corporation, Questcor Pharmaceuticals, Inc., Zygo Corporation, Pepco Holdings, Inc., Measurement Specialties, Inc., Entropic Communications, Inc., PetSmart, Inc., Emulex Corporation, Omnicare, Inc., and TECO Energy, Inc. PUSEY reaped approximately $76,000 in ill-gotten gains from this scheme.
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MCCLATCHEY, 58, of Long Island, New York, is charged with one count of conspiracy to commit securities and wire fraud, which carries a maximum sentence of 25 years in prison; one count of wire fraud, which carries a maximum sentence of 20 years in prison; and 11 counts of securities fraud, each carrying a maximum sentence of 25 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 30, 2016, PUSEY, 47, of Long Island, New York, pled guilty to one count of conspiracy to commit securities and wire fraud, which carries a maximum sentence of 25 years in prison; one count of wire fraud, which carries a maximum sentence of 20 years in prison; and 11 counts of securities fraud, each carrying a maximum sentence of 25 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. Attorney Rebecca Mermelstein is in charge of the prosecution.
The allegations contained in the Complaint 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 Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.