Managing Director Of Investment Bank Found Guilty Of Insider Trading Charges
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that SEAN STEWART, a former Managing Director at an investment advisory firm headquartered in Manhattan, was found guilty of providing inside information to trade and cause another to trade in the securities of five different health care companies, the acquisitions of which were announced between 2011 and 2014. He was convicted after trial before U.S. District Judge Laura Taylor Swain.
Manhattan U.S. Attorney Preet Bharara said: “Another insider trading defendant stands convicted after trial by jury. Time and time again, Sean Stewart took his clients’ most sensitive corporate secrets and fed them to his father on a silver platter for quick and illegal profits. Insider trading rigs the securities markets in favor of cheaters, and we will continue to investigate and prosecute this crime aggressively.”
According to the allegations contained in the Indictment as well as the evidence presented during 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 material nonpublic information about upcoming mergers and acquisitions, including with the names of the companies that were acquisition targets, both when the target was an Investment Bank A client and when the bank represented the acquirer, as well as with information that indicated the likely timing of an upcoming deal.
The first of these deals involved the acquisition of Kendle International Inc. by INC Research, LLC, which was announced publicly on May 4, 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 by the Securities and Exchange Commission about his Kendle trades 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 Apax 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 (“FINRA”) 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 co-conspirator Richard Cunniffe that Robert Stewart was “too close to the source” to be trading in KCI stock 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.
In connection with the FINRA inquiry, FINRA prepared a list of persons and entities that had traded in advance of the Kendle deal. The list included Robert Stewart’s name. When Investment Bank-A asked SEAN STEWART whether he knew anyone on the list, he initially denied recognizing the name of his father; later, when confronted by lawyers from Investment Bank-A, SEAN STEWART acknowledged that his father was on the list but told a series of lies designed to make it seem as if Robert Stewart had independently decided to invest in Kendle. SEAN STEWART told these lies one day after meeting with his father to apprise his father of the FINRA inquiry and to get their stories straight.
When the KCI/Apax Partners deal was announced, Robert Stewart and Cunniffe reaped profits totaling approximately $107,790. At around this time, Robert Stewart told Cunniffe that the source of the KCI tip and the earlier Kendle tip had been Robert’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 on October 5, 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.
During the course of the scheme, SEAN STEWART because aware that his father was having financial problems. Rather than loan his father money, SEAN STEWART gave his father stock tips, the proceeds of which Robert Stewart used to benefit himself and his son.
In March and April of 2015, Cunniffe, who was then cooperating with the Government, 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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SEAN STEWART, 35, of New York, New York, was convicted of one count of conspiracy to commit securities fraud and fraud in connection with a tender offer, one count of conspiracy to commit wire fraud, six counts of securities fraud, and one count of fraud in connection with a tender offer. The securities fraud, tender offer fraud, and wire fraud conspiracy charges each carries a maximum prison term of 20 years. The charge of conspiracy to commit securities fraud and tender offer fraud carries a maximum prison term of five years. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.
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 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 fraud in connection with a tender offer, one count of conspiracy to commit wire fraud, three counts of securities fraud, and one count of fraud in connection with a tender offer.
Mr. Bharara praised the investigative work of the FBI and also thanked the Securities and Exchange Commission.
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.