Investment Bank Director Pleads Guilty In Manhattan Federal Court To Insider Trading
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that STEVEN MCCLATCHEY, a director at an investment bank in Manhattan (the “Investment Bank”), pled guilty to committing insider trading in connection with potential mergers and acquisitions (“M&A”) in which the Investment Bank was involved. MCCLATCHEY pled guilty to one count of conspiracy to commit securities and wire fraud and one count of securities fraud before U.S. District Judge Katherine Polk Failla.
U.S. Attorney Preet Bharara said: “As he has now admitted through his guilty plea, Steven McClatchey abused his position at a major investment bank, tipping his close friend Gary Pusey with material, nonpublic information about mergers and acquisitions. Pusey traded on that market-moving information and rewarded McClatchey with cash kickbacks and home renovations in return.”
According to the allegations contained in the Information filed against MCCLATCHEY and statements made in related court filings and 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, Gary Pusey.
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 that 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, pled guilty to one count of conspiracy to commit securities and wire fraud and one count of securities fraud. Each count carries a maximum sentence of 25 years in prison. The charges also carry a maximum fine of $250,000, 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.