Thursday, March 15, 2012

SEC: Insider trading from AA tip

On Tuesday, the Securities and Exchange Commission (SEC) charged five individuals with insider trading for more than $1.8 million in illicit profits based on confidential merger information learned in an Alcoholics Anonymous (AA) meeting.



The SEC alleges that Timothy J. McGee met a senior executive of a Philadelphia-based insurance holding company in an AA meeting. Their shared interest in triathlons brought them closer together, and the senior executive told Mr. McGee that pressure from merger negotiations with a Japanese firm drove him to drink. Mr. McGee expressed interest in the details of the impending deal and found out that Tokio Marine would be the acquirer, the sale was getting close, and that the price would be approximately three times the book value of the company.



Mr. McGee then bought company’s stock and tipped his co-worker Michael Zirinsky to the merger. Mr. Zirinsky also bought stock through his own account as well as those of his wife, sister, mother and 89-year old grandmother. He allegedly tipped off his father and a friend in Hong Kong, who, in turn, passed the tip along to others.



The SEC charged the actors with trading on the basis of material nonpublic information misappropriated from an insider. SEC Rule 10b-5. Nonpublic information does not mean there has to be a confidentiality agreement or some sort of security clearance involved. Since confidentiality is emphasized at AA meetings, what is said at AA should stay at AA.