Insider Trading: “The Fox Guarding The Henhouse”
Donald Johnson, a 56 year old Nasdaq Stock Market official who was privy to inside information about corporate announcements such as mergers, earnings hits and misses or the departure of top ranking corporate executives traded on the news and pocketed over $750,000 in illicit profits, according to an article in the Wall Street Journal. The enforcement director of the Securities and Exchange Commission, Robert Khuzami, said that “this case is the insider trading version of the fox guarding the henhouse.” Johnson was so brazen as to make the trades in his wife’s name on his work computer in his Manhattan office. He had served in numerous positions at Nasdaq over a span of twenty years until his retirement in 2009, according to court documents.
Apparently the trading began in 2006 when he was transferred to the Nasdaq OMX Group exchange’s market intelligence desk, where he advised corporate executives and CEO’s about how upcoming news could impact the companies’ stock price. Some of the trades Johnson made included his buying and selling United Therapeutics Corporation in October 2007, who advised him in advance about the success of a drug trial generating a $175,000 profit. In October 2008, Johnson shorted IDEXX Laboratories stock after getting upcoming earnings information generating a $99,000 profit. In May 2008, he had information that Energy Conversion Devices would report better than expected earnings and the day before the news was announced he purchased shares pocketing a profit of $114,000. All said, Johnson traded ahead of nine corporate events generating profits of $755,000, according to Justice Department officials.
Johnson pleaded guilty to criminal securities fraud in federal court in Virginia related to his insider trading. He could face up to 20 years in prison but the government is pushing for a stiffer sentencing because of the “abuse of his position of special trust.”