SEC v. McPhail.
According to the SEC, McPhail’s source of inside information was a member of AMSC’s senior management, who became close friends with McPhail as members of the same country club.[1] The SEC complaint shows that the two developed a close bond over the years, communicating almost daily and playing golf together, and exchanged intimate and confidential details about their personal and professional lives, relying on each other for support and advice.[2] Unbeknownst to the AMSC executive, however, McPhail was in for something else. According to the SEC, McPhail deliberately elicited high level, confidential, and sensitive information about AMSC from the executive, including its quarterly earnings and other major corporate developments, prior to AMSC’s release of the information to the public.[3]
The SEC alleged that, from at least July 2009 through April 2011, McPhail tipped such yet-to-be released news to his golfing buddies with whom he regularly communicated as a group.[4] The group email chain allegedly served as a forum to exchange information not only about golf, but also about AMSC, which the SEC alleges a reasonable investor would have viewed as being important to his or her investment decision.[5] The SEC alleged that, at various times, the defendants traded in AMSC securities while in possession, and on the basis, of material nonpublic information about AMSC misappropriated by McPhail, knowing or having reason to know that they improperly obtained the information.[6] In return, McPhail allegedly profited from his friends’ illegal gains, as shown by some of his emails (e.g., “[n]ice profitable day for the boys. So when should I report in on which restaurant and massage parlor I want to be treated to?”, “I like Pinot Noir and love steak. . . . looking forward to getting paid back.”), though he did not engage in stock trading himself.[7]
The SEC charged the defendants with fraud, deceit, manipulation, or deliberate or reckless disregard of regulatory requirements and directly or indirectly resulting in substantial losses to other persons in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and sought to have them be enjoined, disgorge their allegedly ill-gotten gains with interest, and pay civil penalties of up to three times the gains.[8] The SEC’s civil case is ongoing. Meanwhile, in the parallel criminal case, a federal jury in Massachusetts convicted McPhail of criminal charges of conspiracy and securities fraud for his role in the insider trading ring.[9] Parigian, one of McPhail’s golfing buddies and defendant in both civil and criminal cases, had pleaded guilty[10] and was recently sentenced to eight (8) months of home confinement and three (3) years of supervised release.[11]
This post was a part of a blog series on insider trading. You can find the other post by searching our blogs. If you have any questions about the content of this blog series or other issues not discussed here, please contact us.
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About the Author
Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C. which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: 407-517-0064; [email protected], or www.mcbrideattorneys.com.
[1] SEC v. McPhail, Civil Action No. 1:14-cv-12958 (D. Mass. July 11, 2014), ¶ 2.
[2] Id. ¶ 22.
[3] Id. ¶¶ 24–25.
[4] Id. ¶ 28.
[5] Id. ¶¶ 29–31.
[6] Id. ¶¶ 34–35.
[7] Id. ¶¶ 57, 62.
[8] Id. ¶¶ 130–31.
[9] SEC, Litigation Release No. 23289: Jury in Criminal Case Convicts Insider in Insider Trading Case Involving Group of Amateur Golfers (June 17, 2015), https://www.sec.gov/litigation/litreleases/2015/lr23289.htm.
[10] SEC, Litigation Release No. 23264: Defendant in SEC Insider Trading Case Involving Group of Amateur Golfers Pleads Guilty to Criminal Charges (May 18, 2015), https://www.sec.gov/litigation/litreleases/2015/lr23264.htm.
[11] SEC, Litigation Release No. 23323: Defendant in SEC Insider Trading Case Sentenced by Massachusetts Federal Court in Parallel Criminal Action (Aug. 19, 2015), https://www.sec.gov/litigation/litreleases/2015/lr23323.htm.