The Securities and Exchange Commission today announced additional charges in its insider trading case against Denver-based traders who traded on confidential information in the securities of Mariner Energy Inc. ahead of the oil and gas company’s USD3.9 billion takeover by Apache Corporation in April 2010.
In its initial complaint filed on 5 Aug, 201, the SEC alleged that Mariner Energy board member H Clayton Peterson tipped his son with confidential details about Mariner Energy’s upcoming acquisition. Drew Clayton Peterson, who was a managing director at a Denver-based investment adviser, then used the inside information to purchase Mariner Energy stock for himself and others.
An amended complaint filed today adds two more defendants to the case – money manager Drew K Brownstein who is a longtime friend of Drew Peterson, and the hedge fund advisory firm he controls, Big 5 Asset Management LLC. The SEC alleges that Brownstein traded Mariner Energy securities on the basis of inside information he received from Drew Peterson and reaped illicit profits of more than $5 million combined in his own account, the accounts of his relatives, and the accounts of two hedge funds managed by Big 5.
“This case is further evidence of the pervasive nature of insider trading by hedge funds, and a sobering reminder that such conduct is not limited to the immediate vicinity of Wall Street but is taking place in cities around the country,” says Sanjay Wadhwa, Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit and Associate Director of the New York Regional Office. “The SEC is firmly committed to rooting out this illegal activity wherever it occurs, and those who engage in this conduct should consider the severe consequences they will face when caught.”
According to the SEC’s amended complaint, Drew Peterson repeatedly tipped Brownstein about the impending acquisition of Mariner Energy as he learned the information from his father. Brownstein caused two Big 5 hedge funds – the Lion Global Fund LLLP and the Lion Global Master Fund Ltd. – to purchase large quantities of Mariner Energy stock and call option contracts on the basis of the inside information. This was the first time that the Big 5 hedge funds had ever traded Mariner Energy stock or options. Brownstein also purchased thousands of shares of Mariner Energy stock and call option contracts for the accounts of his relatives and for his personal brokerage account. In the days following the announcement of the deal, Brownstein liquidated the positions he had accumulated in Mariner Energy securities.
The SEC’s amended complaint charges each of the defendants with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks a final judgment permanently enjoining them from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest, and ordering them to pay financial penalties. The SEC also seeks to permanently prohibit Clayton Peterson from acting as an officer or director of any publicly registered company.
The SEC’s investigation was conducted by Joseph Sansone, a member of the SEC’s Market Abuse Unit in New York, with assistance from Neil Hendelman of the New York Regional Office and Jay Scoggins, Jeffrey Oraker, Bruce Ketter and Craig Ellis of the Denver Regional Office. The SEC acknowledges the ongoing assistance and cooperation of the US Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.