New York Man Pleads Guilty to Insider Trading

   NEW YORK - 9/6/2015 - United States Attorney for the Southern District of New York Preet Bharara recently announced that Robert Stewart, the father of former investment bank managing director Sean Stewart, pled guilty to participating in a conspiracy to trade on inside information about several mergers and acquisitions announced between 2011 and 2014.
   Robert Stewart was arrested on May 14, 2015, and Sean Stewart surrendered to federal authorities that same day
   Charges against Sean Stewart remain pending before U.S. District Judge Laura Taylor Swain. A third member of the charged conspiracy, cooperating witness Richard Cunniffe, pled guilty before Judge Swain on May 12, 2015, and awaits sentencing. Steward is scheduled to be sentenced by Judge Swain on November 12.
   “Instead of teaching his son lessons of right and wrong, Robert Stewart worked with him to break the law by trading on nonpublic information and sharing in the benefits with him. Robert Stewart’s criminal actions – to which he has pled guilty today – perpetuate the unfortunate perception that the markets are rigged in favor of those with connections,” Bharara said.
   According to the agreement pursuant to which Robert Stewart entered his plea of guilty today, the underlying criminal complaint filed May 13, 2015, the Superseding Indictment filed July 15, 2015, and statements made during court proceedings:
   In early 2011, Sean Stewart, who at the time held the position of Vice President in the Healthcare Investment Banking Group of a global bank headquartered in Manhattan (“Investment Bank A”), began tipping his father with nonpublic information about upcoming mergers and acquisitions.
   The first of these deals involved the acquisition of Kendle International Inc. (“Kendle”) by INC Research, LLC, which was announced publicly on May 4, 2011
   Sean Stewart worked on the deal, representing Kendle. Robert Steward made about $7,900 in profits on purchases of Kendle stock executed in February and March of 2011 When questioned by the Securities and Exchange Commission about his Kendle trades in May 2013, Robert Stewart reported that he used the proceeds of those trades to pay expenses related to Sean Stewart’s June 2011 wedding.
   The second deal about which Sean Stewart tipped Robert Steward was the acquisition of Kinetic Concepts Inc. (“KCI”) by Apax Partners, announced on July 13, 2011. Although Robert Steward purchased some stock in KCI based on Sean Stewart’s tip, he sold that stock before the acquisition was announced, around the same time that Sean Stewart learned the Financial Industry Regulatory Authority was conducting an inquiry into Robert Steward’s Kendle trading.
   Also around this time, in the spring of 2011, Robert Steward expressed a concern to co-conspirator and cooperating witness Richard Cunniffe that Robert Steward was “too close to the source” to be trading in KCI stock in his own account, and asked Cunniffe to make purchases of KCI call options for Robert Steward in Cunniffe’s brokerage account. Cunniffe agreed to do so, and also mirrored for his own benefit the KCI trades that Robert Steward was directing.
   When the KCI/Apax Partners deal was announced, Robert Steward and Cunniffe reaped profits totaling approximately $107,790. At around this time, Robert Steward told Cunniffe that the source of the KCI tip and the earlier Kendle tip had been Robert’s son Later, around the spring of 2012, Robert Steward clarified for Cunniffe that the son in question was Sean Stewart, who worked on the “sell side” on Wall Street.
   In October 2011, Sean Stewart left Investment Bank A. A few months later, he joined an investment banking advisory firm headquartered in Manhattan (“Investment Bank B”) as a managing director.
   During Sean Stewart’s tenure with Investment Bank B, based on tips concerning nonpublic acquisition-related information supplied by Sean Stewart, Robert Steward had Cunniffe conduct options trading in advance of the public announcements of three more deals: (1) the acquisition of Gen-Probe Inc. by Hologic Inc., announced on April 30, 2012; (2) the acquisition, by tender offer, of Lincare Holdings Inc. (“Lincare”) by Linde AG, announced on July 1, 2012; and (3) the acquisition of CareFusion Corp. (“CareFusion”) by Becton, Dickinson & Co. (“Becton”), announced on October 5, 2014. Investment Bank B represented Hologic Inc. in connection with its acquisition of Gen-Probe Inc.; Linde AG in connection with its acquisition of Lincare; and CareFusion in connection with its acquisition by Becton. The profits that Robert Steward and Cunniffe reaped from illegal insider trading in advance of the announcements of these three deals totaled approximately $1.1 million. In the midst of the scheme, in December 2012, Robert Steward transferred at least $15,000 to Sean Stewart.
   To try to avoid detection for their crimes, Robert Steward and Cunniffe refrained from speaking explicitly about their trading over the phone or e-mail, sometimes using “golf”-related code For example, shortly after the announcement of Lincare’s proposed acquisition by Linde AG, a German company, Robert Steward wrote to Cunniffe that he had seen a news story about the “high cost of golf reservations since a foreign company purchased all-even more expensive than imagined.” Other steps Robert Steward and Cunniffe took to avoid detection included trying to discuss their trading at face-to-face meetings and adopting a profit-splitting mechanism that had Cunniffe paying Robert Steward his portion of the illegal proceeds in small increments, over time, typically in cash.
   In March and April of 2015, Cunniffe recorded meetings he had with Robert Steward During one such meeting, Robert Steward accepted a payment of $2,500 cash from Cunniffe, which was the balance of the proceeds owed to Robert Steward for profitable trading executed in Cunniffe’s account in advance of the CareFusion acquisition announcement. Also during this meeting, Robert Stewart admitted that Sean Stewart once chastised him for failing to make use of a tip, saying, “I can’t believe I handed you this on a silver platter and you didn’t invest in it.”
   Source: Financial Fraud Enforcement Task Force

Photo by Steve Rensberry (c) 2014