You’re senior management of a public company. You just made a million dollar bonus for performance. You get paid $735,000 if the company is sold. You’ve got 150,000 shares of company stock that’ll be worth over $4 million. You’re in the process of selling the company.
Do you tell your wife and best friend about the transaction and tell them to buy the company stock?
You would not. But the President and COO of Pet IQ did.
The company had an insider trading policy that prohibits disclosure of material non-public information about the company and trading company stock if you have MNPI. The company had just imposed a blackout on trading company stock.
The now former President and COO went to see his ex-wife and purchased almost $400,000 shares in Pet IQ in her brokerage account. He also told his best friend, Mr. Dalton, who went and purchased call options on Pet IQ and made over $100,000 in trading profits.
Mr. Dalton sent this message to an unnamed person:
“Just in case we don’t get to run into each other again. Pull your available cash together and buy PETQ it’s at 23 dollars getting bought out in the next couple of days at 31 dollars a piece. If you have or know options do a call on them. It’s my best friend telling me this that’s a VP in the company.”
Back to Mr. Smith, some information got to the feds. Law enforcement showed up at his house and asked about the trades in his ex-wife’s account. According to the plea agreement, he denied making the trades in his talk with law enforcement. Also not smart. Lying to the feds is also a criminal offense. That’s how they got Martha Stewart. He thought better and called them back and told the feds that he had not been truthful.
No sentencing yet, but the maximum penalty is 20 years in prison.
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