In a sweeping crackdown on insider trading, the SEC and DOJ each brought four actions against a total of 13 defendants that netted more than $40 million in illegal profits. The cases included charges against several parties for trading on advance information about Digital World Acquisition Corp.’s agreement to acquire Trump Media & Technology Group Corp. The agencies also charged two individuals, including a chief compliance officer, for purchases and sales on information illegally obtained from a New York-based investment bank (SEC v. Garelick; SEC v. Meadow; U.S. v. Meadow; U.S. v. Shvartsman, June 30, 2023).
The defendants and their alleged violations are:
- Bruce Garelick, Michael Shvartsman, Gerald Shvartsman, and Rocket One Capital LLC (SEC charges only) for illegal trading in the securities of SPAC Digital World Acquisition (DWAC) in connection with its agreement to purchase Trump Media;
- Jordan Meadow and Steven Teixeira for illegal trading in the securities of numerous issuers with information stolen from a New York investment bank;
- Joseph Dupont, Shawn Cronin, Jarrett Mendoza, Slava Kaplan, and Paul Feldman for illegal trading in the securities of Portola Pharmaceuticals Inc.; and
- Amit Dagar and Atul Bhiwapurkar for illegal trading in the securities of Pfizer Inc. in connection with the release of Paxlovid (as reported in yesterday’s Securities Regulation Daily).
According to the Commission, each of the individuals purchased DWAC securities on the open market, with Michael Shvartsman placing his trades through an account in the name of Rocket One Capital. After the merger was announced, they sold their positions and pulled in profits of more than $22.9 million.
The SEC further alleges that, despite being a DWAC director and thus having certain reporting obligations, Garelick failed to file SEC Forms 4 and 5 related to his transactions in DWAC securities. The defendants were charged with violating the antifraud provisions of the federal securities laws, with Garelick also facing 1934 Act Section 16 charges. The SEC seeks permanent injunctive relief, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties against all defendants, as well as officer and director bars against Garelick and Michael Shvartsman.
The DOJ charged Garelick and Michael Shvartsman each with five counts of securities fraud under Title 15, one count of securities fraud under Title 18, and one count of conspiracy. It charged Gerald Shvartsman with three counts of securities fraud under Title 15, one count of securities fraud under Title 18, and one count of conspiracy.
Stolen information. The SEC’s charges against Meadow, a broker-dealer, and Teixeira, the chief compliance officer at a payment processing company, relate to information that Teixeira obtained from the laptop of his girlfriend who worked for a New York-based investment bank. The non-public information concerned possible upcoming mergers and acquisitions of public companies, according to the SEC.
The Commission claims that Teixeira used the information to purchase call options on several issuers ahead of the announcement of the deals and tipped the information to his friends, including Meadow. The scheme generated illicit profits of $28,600 for Teixeira and more than $730,000 for Meadow. In addition, the SEC alleges, Meadow recommended trades to his brokerage customers based on the non-public information from Teixeira, resulting in millions of dollars in profits for them and hundreds of thousands of dollars in commissions for Meadow.
The SEC charged Teixeira and Meadow with antifraud violations and seeks permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and bars on Meadow and Teixeira serving as officers or directors of public companies. The DOJ charged Meadow with six counts of securities fraud under Title 15, one count of securities fraud under Title 18, and one count of conspiracy. The DOJ also charged Teixeira, who pled guilty pursuant to a cooperation agreement.
Police chief charged. The SEC also brought charges against five individuals, including a Massachusetts police chief, in connection with their trading before the announcement of an offer by Alexion Pharmaceuticals Inc. to acquire Portola Pharmaceuticals Inc. The SEC determined that four of the defendants traded on non-public information obtained from the fifth defendant, resulting in more than $2.3 million in profits. They also tipped others who netted more than $1.7 million, the SEC stated.
The SEC alleges that Dupont was part of the acquisition team at Alexion and knowingly shared confidential information about the acquisition to his friend Cronin, a police chief. Cronin allegedly then provided the information to Mendoza, another friend, and to Kaplan, who provided advice to Cronin on trading strategies. Kaplan provided the information to Feldman, a friend and colleague.
The four defendants, other than Dupont, purchased Portola stock and out-of-the money call options prior to merger announcement, the SEC said. On the day of the merger announcement, Portola’s stock price increased more than 130 percent, resulting in the following profits: Cronin - $72,000; Mendoza - $39,000, Kaplan - $472,000; and Feldman - $1.73 million. According to the Commission, other traders who allegedly received non-public information from either Kaplan or Feldman saw profits of an additional $1.7 million.
The SEC charged all five defendants with violating the antifraud and tender offer provisions of the federal securities laws. It seeks permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and officer and director bars against each defendant.
The DOJ charged Dupont with one count of Title 15 securities fraud, one count of tender offer fraud, and one count of securities fraud under Title 18. Cronin is charged with three counts of securities fraud under Title 15, three counts of tender offer fraud, one count of securities fraud under Title 18, and one count of conspiracy to commit securities fraud and tender offer fraud.
Kaplan is charged with three counts of securities fraud under Title 15, three counts of tender offer fraud, one count of securities fraud under Title 18, and one count of conspiracy to commit securities fraud and tender offer fraud. Feldman is charged with six counts of securities fraud under Title 15, six counts of tender offer fraud, one count of securities fraud under Title 18, and one count of conspiracy to commit securities fraud and tender offer fraud. Mendoza pled guilty to the charges against him pursuant to a cooperation agreement.
The cases are No. 1:23-cv-05567 and No. 1:23-cv-05573.