SEC: Firms Cannot Package ABS, Sell It And Short It
The U.S. Securities and Exchange Commission (SEC) has issued SEC Release 2011-183 announcing that it has charged Scott Allen and John Michael Bennett with trading on inside information ahead of a couple of biotech takeovers. According to the release, the two were friends for over fifteen years. Early in 2008, Scott Allen learned about the Millenium Pharmaceuticals Incorporated takeover by Japan-based Takeda Pharmaceutical Company, while working at a consulting firm. He mentioned that deal, along with information about another takeover of Sepracor Incorporated by Japanese firm Dainippon Sumitomo Pharma Company LTD, to John Michael Bennett, a former Wall Street investment banker and filmmaker. Bennett then passed the information along to his filmmaking business partner, as well. Bennett and Allen made over $2.6 million in profits by trading on the confidential information, in addition to Bennett paying Allen cash for the inside info.
With regard to the Millenium deal, Allen had inside information that the offer was thought to be between $23 and $24 per share, leading up to the announcement. Bennett and his filmmaking partner started buying Millenium call options. After the announcement, the share price went up over 48% and the two dumped their positions generating gains totaling $1,722,000. With regard to the Sepracor deal, Allen again got inside information about the pricing of the upcoming deal and Bennett and his filmmaking partner again loaded up on Sepracor call options. Then, after the announcement and the stock took off, the two dumped their positions generating ill-gotten gains of $904,000.