Two former stock brokers at a Connecticut financial services company were charged with insider trading on Thursday over a 2009 acquisition by computer giant IBM Corp.
US authorities said Thomas Conradt, David Weishaus and three unnamed colleagues made more than USD1 million in illicit gains by trading in shares of SPSS Inc before IBM agreed on July 28, 2009, to buy the Chicago-based software company for USD1.2 billion.
Prosecutors said the alleged scheme started with a tip from an associate at the New York law firm that represented IBM in the transaction. Prosecutors did not name the law firm, but regulatory documents listed Cravath Swaine & Moore as counsel to IBM in the deal.
"Thomas Conradt, David Weishaus and their co-conspirators engaged in a chain of illegal tipping simply because they wanted to get rich quick," US Attorney Preet Bharara in Manhattan said in a statement.
Conradt, 34, is a lawyer living in Denver, while Weishaus, 32, lives in Baltimore. Both were formerly employed at Euro Pacific Capital Inc, a Westport, Connecticut-based firm, according to the Financial Industry Regulatory Authority.
Sharon Feldman, a lawyer for Conradt, did not immediately respond to a request for comment. Michael Grudberg, a lawyer for Weishaus, declined to comment.
Evan Chesler, presiding partner of Cravath, declined comment. IBM and Euro Pacific Capital did not immediately respond to requests for comment.
Conradt and Weishaus were arrested on Thursday morning, an FBI spokesman said. Each was charged with three counts of securities fraud and one count of conspiracy in an indictment unsealed in US District Court in Manhattan.
If convicted, they face up to 20 years in prison and a USD5 million fine on each of the securities fraud counts.
The US Securities and Exchange Commission filed related civil fraud charges against both men.
KEEPING IT IN THE FAMILY
IBM agreed to pay USD50 per share for SPSS, a 42 percent premium to SPSS' closing price on the day before the purchase was announced.
According to court papers, Conradt's roommate, an Australian equities analyst, had learned about the pending acquisition from a close friend, a New Zealand citizen who worked as an associate at the New York law firm.
Investigators said Conradt then tipped Weishaus, who in turn tipped three colleagues, who were not named in court papers. These five people placed the various improper trades in SPSS stock and options, according to the court papers.
The indictment outlines a series of instant messages involving the defendants that prosecutors said reflect their involvement in the improper trades.
In one exchange, according to the indictment, Conradt on July 1, 2009, told Weishaus, "jesus, don't tell anyone else, we gotta keep this in the family".
Weishaus then said, "i dont want to go to jail," and said "martha stewart spent 5 months in the slammer," referring to the homemaking doyenne, who was convicted in 2004 on charges of lying to investigators about a stock sale. He also alluded to an SEC insider-trading case against Mark Cuban, the billionaire owner of the Dallas Mavericks pro basketball team.
The criminal case is US v. Conradt et al, US District Court, Southern District of New York, No. 12-cr-00887. The SEC case is SEC v. Conradt et al in the same court, No. 12-08676.
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