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  • Writer's pictureRobin Lyons

Illegal Profits

If you dabble in the stock market, primarily penny stocks, and have a friend who's an investment adviser and he shared with you an insider scoop on an upcoming $11 billion acquisition that would cause a major stock spike, would you buy stock before the spike? Keep reading to see why your answer should be a firm, no way.

A longtime friend, a supervisor at a brokerage firm, shared the acquisition knowledge. Him sharing the information violated the Securities Exchange Act of 1934.

The brokerage firm’s policies and procedures manual stated,

“You may never, under any circumstances, trade, encourage others to trade, or recommend securities, derivatives or other financial instruments while in possession of material non-public information.”

Three days before the acquisition, the friend who’d been told about the acquisition purchased over 2,500 shares. A few hours after the acquisition, the friend sold the stock, making a fast $700,000+ in illegal profits. In exchange for the insider information, the friend gave the stockbroker $65,000.

Rather than go to trial, the former stockbroker agreed to plead guilty to conspiracy to commit securities fraud. A judge sentenced him to three years of probation, four months of home confinement, and forfeit $35,000.

The man who purchased the stock also pleaded guilty to conspiracy to commit securities fraud. A judge sentenced him to one year and one day in prison, three years of supervised release and forfeiture of over $340,000.

A representative from the U.S. Securities and Exchange Commission (SEC) associated with the case stated,

“As an industry professional [the stockbroker] surely knew what he was doing was wrong, but he incorrectly thought that his scheme was clever enough to avoid detection by investigators.”

The SEC seized the rest of the illegally obtained money and prohibited both men from buying or selling stocks for the rest of their lifetime.

Do you find it odd that the stockbroker’s sentence was more lenient than that of his friend? I do. #truecrime #stockbroker

Source: USA District Court, USA Department of Justice, USA Securities and Exchange Commission

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