The SEC charged an analyst at Standard & Poor’s with tipping friends soon after learning that Sherwin-Williams would acquire Valspar. The two friends, who are also named as defendants, made a total of about $300,000 by trading in Valspar stock, according to the complaint filed in the Southern District of New York. The trio were arrested on parallel criminal charges (SEC v. Pinto-Thomaz, June 26, 2018).
Civil charges. The analyst learned of the impending acquisition on March 8, 2016, when Sherwin-Williams consulted S&P about the deal. The SEC alleges that the analyst called and texted one of the friends, a hair-salon owner, within minutes of his first contact with a Sherwin-Williams representative. The salon owner, who had never bought Valspar stock before, purchased 1,000 shares two days later and an additional 7,630 shares over the following week. The other friend, a jeweler, opened a brokerage account on March 13 and bought 480 shares of Valspar stock and 75 call options.
The paint companies announced the acquisition on March 20; the next day, the price of Valspar shares increased by more than 23 percent. The jeweler sold his shares and options on March 21 for a profit of $107,000; the salon owner sold his shares later in the week for a profit of $192,000.
Evidence of relationship. According to the criminal complaint, the analyst and salon owner shared 460 texts and phone calls over the five years preceding the acquisition. The salon owner also had 913 communications with a member of the analyst’s immediate family during about the same time period. After this family member attended the jeweler’s 2011 wedding, the jeweler kept in contact with the analyst through telephone communications, WhatsApp, email, and iMessage.
The criminal complaint is dated June 25, the same day a divided Second Circuit panel held that prosecutors need not demonstrate a personal relationship between a tipper and tippee for insider-trading liability to attach.
Officials’ statements. "Employees of credit ratings agencies often receive confidential corporate information ahead of mergers, acquisitions, and other market-moving events, and, similar to investment bankers, attorneys, and other corporate advisors, must not abuse this access by trading on the information or by tipping others," said Joseph G. Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. FBI Assistant Director-in-Charge William F. Sweeney Jr. said the Bureau hopes "today’s arrests will show all like-minded schemers that this alleged behavior ultimately does get you to the inside – of a federal prison."
The case is No. 18-cv-05757.
Attorneys: Joseph G. Sansone, Securities and Exchange Commission, for the SEC.
Companies: The Sherwin-Williams Company; The Valspar Corporation
MainStory: TopStory CreditRatingAgencies Enforcement FiduciaryDuties FraudManipulation NewYorkNews
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