Insider Trading Patterns that send Red Flags to the SEC

In a case that's featured on my blog, five South Florida men settled insider trading charges with the SEC after receiving insider information from a board member of a pharmaceutical company (Pharmasset) in a meeting which they all attended. They were fortunate to only have to pay monetary penalties without serving any time in prison. .

Michael Cohen is a highly experienced Fort Lauderdale insider trading attorney who has substantial experience in all federal criminal charges. If you, a friend or loved one is under investigation or has been accused or arrested for insider trading Mr. Cohen's law practice can guide you through the process and fight to achieve the best possible outcome.

What's very interesting in this case was the difference in the five men's trading patterns after they were in possession of the material non-public information. Each man's actions after they received the information are detailed below:

The first red flag was the fact that none of the men involved in the case previously bought or traded the company's stock.
 
After he was in receipt of the "insider information" although Donald Teascher did buy the Pharmasset stock in an IRA account in his own name, less than an hour after the conclusion of the confidential November 8th meeting, he only purchased 150 shares at a price of approximately $67.78 per share. He then held the shares until the announcement of a buyout of the company was released to the public driving the stock price through the roof. His investment of a little more than $10,000, netted him a profit of $9,937, almost doubling his single investment.  

Similarly, Thomas Palermo who was tipped to the insider information by his friend Robert Spallina who attended the confidential meeting only made purchases of the stock and held all his buys until the announcement was made public.

Palermo initially purchased 750 shares through his IRA account at a price of approximately $68.12, the same day he was let in on the insider information and then continued to buy more.

Less than a half an hour later, he purchased 10 Pharmasset call options at an average price of approximately $3.00 per contract through an account titled in his wife's name. A few minutes after that he bought 500 shares of the stock at a price of approximately $68.65 per share through his wife's 401(k) account.

Once the buyout was made public on November 21, 2011 he sold the 750 shares in his IRA account at an average price of $135.00 per share, the 500 shares in his wife's 401(k) for approximately $134.65 per share, and the 10 Pharmasset call options that was in his wife's individual brokerage account at an average price of $45.00. The total profit realized by the three transactions amounted to $124,528.

As another consequence of his actions, it is now noted on the Financial Industry Regulatory Authority's Website (FINA), that Thomas J. Palermo has since been permanently barred from acting as an investment adviser and broker, or otherwise, connecting to firms that sell securities or provide investment advice to the public. His career and reputation has been forever tarnished.

Early in the afternoon of the same day the meeting was held, Robert Spallina also purchased the stock, initially buying 250 shares in his own name through his Roth IRA at a price of approximately $70.64 per share and then added to his total position by buying another 100 shares through an account he holds jointly with his wife. That purchase was made at the share price of $70.40. The following day, he added another 250 shares to the total position after the stock price dropped to $66.52. That transaction was made through a Roth IRA in his wife's name. On November 21st after the news was made public, he liquidated all three positions for a total profit of $39,156. He also received a benefit in consideration for telling Palermo and Markowitz about the material, nonpublic deal.

Differing in strategy from the others, Rosen and Markowitz both day-traded the stock in advance of the immense announcement.

Rosen purchased five Pharmasset call options at an average price of approximately $1.95 though his corporate account titled Steven G. Rosen CPA, P.A and then bought an additional 200 shares in an IRA account in his name at approximately $68.64 per share about a half hour later. He then sold the 200 shares at $70.72 making a small profit less than two hours later. On November 14 he bought 200 fresh shares of the stock at $66.34 in the same IRA account in his name and sold it the following day at $70.72 making another small profit. The total profit made based on those day trades amounted to $1,136. But the bulk of the proceeds were generated when he sold the five Pharmasset call options at an average price of approximately $55.00 that were in the corporate account. In total he collected a combined profit of $27,634.

But Markowitz made a small hobby of trading the stock.
He first purchased 400 shares in his IRA account at a share price of approximately $67.54 and added five call options through an entity he controlled named Coopster Investments LLP about 15 minutes later on the day following the meeting. That afternoon he added another 400 shares at approximately $66.36 per share and sold those shares at approximately $66.56. The following day he again bought 300 shares of the stock at $65.97 and sold that stock the next day at $66.32. After the weekend passed, on Monday morning he purchased 300 shares of stock at $66.36 and sold those shares the same afternoon at a share price of $67.07. All these mentioned transactions were made through the LLC.

He continued trading the stock in his IRA account with a 400 share purchase on November 15th. He paid approximately $70.10 per share in the morning for that transaction and sold the 400 shares at approximately $71.27 that afternoon. The following morning he bought 400 shares at $70.18 and sold those shares twenty two minutes later at $70.83 per share. Later that morning he bought 300 shares at a price of $70.70 per share and sold the 300 shares that same afternoon at approximately $73.05.

On Thursday, November 17 he bought 300 shares at approximately $71.44 and sold those shares less than an hour later at approximately $72.24. A little later that morning he sold the original 400 shares that he bought on November 9 at prices between approximately $67.52 and $67.55 per share at a selling price of approximately $73.12.

To cap off the week, he purchased 300 shares at approximately $72.13 soon after the market opened and sold those shares at a price of approximately $72.68 about an hour after the buy.

All of those trades that he made throughout the week netted him a profit of $4,376. And then on Monday November 21, after the news was released he sold the 5 call options in his LLP account at an average price of $59.80, giving him a further profit $28,555.

In total, he pocketed $32,931.
 
Many people who commit the crime of insider trading don't even realize what they're doing is illegal. If a friend gives you a "stock tip" and it turns out they got the information from an insider source, you can be charged with the crime. Of course, the lack of knowledge from where the information originated could be a winning defense. However you still may have to face charges and will need a federal criminal defense attorney to watch out for your best interests and defend your Constitutional rights.

An insider trading charge can happen to anyone who is active in the stock market and acts on advice given by others. I am always available to help if a charge of insider trading has been filed or if you believe you may be the target of an investigation. When it is essential to immediately contact a qualified criminal defense attorney, your call will be taken 24/7 including weekends and all holidays.

My résumé includes close to a combined forty years working as an Assistant United States Attorney prosecuting cases for the government and currently practicing as a criminal defense attorney in Fort Lauderdale, Florida for almost half of that period of my professional career. On the state level, I previously held the office of Assistant State Attorney for Broward County, Florida making my law firm the logical choice to fight all allegations filed by either the State of Florida or any prosecutorial branch of the federal government. 

To view my complete résumé and full list of qualifications, and understand what should be your next step if you or someone you care about is accused of insider trading or are facing any other criminal allegations, click here.