The Securities and Exchange Commission has charged the former CEO of a Houston-based investor relations firm with insider trading in the securities of multiple firm clients.
The SEC alleges that Stephen B. Gray obtained confidential information about the companies while the firm assisted them with drafting and publishing press releases to report quarterly and annual earnings, mergers and acquisitions, and other major events.
Gray then traded on the basis of that material, non-public information for profits and avoided losses of more than US$313,000 during a 13-month period. Gray disregarded the firm’s standard agreements with clients to protect confidential information and use it solely for business purposes, and he also flouted the firm’s "statement of policy regarding securities trades" that prohibited trading by firm personnel when in possession of non-public information about clients.
Gray was fired last October after the firm learned about the SEC’s investigation.
David Woodcock, director of the SEC’s Fort Worth regional office, said: "As head of an investor relations firm that helped clients prepare announcements of material events, Gray had unique access to extremely sensitive and confidential information before the rest of the world received it."
David L. Peavler, associate director of the Fort Worth regional office, said: "Gray not only knew the firm’s policies that prohibited employees from trading on confidential information gleaned from clients – he authored them. While Gray was personally requiring firm employees to sign copies of the policies he wrote, he was insider trading himself."
According to the SEC’s complaint filed in federal court in Houston, Gray illegally traded in the securities of at least six firm clients.
Gray asked employees about forthcoming material transactions or announcements before they became public, and he sometimes met directly with clients to discuss confidential information with them. Gray also helped maintain the firm’s shared computer network drive, which included drafts and final versions of all relevant press releases.
According to the SEC’s complaint, Gray opened his only trading account in September 2009 and borrowed funds from his life insurance policy to fund his trading activity. At first, Gray primarily traded in the common stock of firm clients, sometimes holding the securities for months at a time but on other occasions compiling shares immediately before a major announcement.
According to the SEC’s complaint, later that same year Gray began engaging in more risky and lucrative short-term options trades in which profits were facilitated by his knowledge of inside information. In several instances, Gray purchased very short-term call and put options contracts.
The SEC’s complaint charges Gray with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and seeks a final judgment ordering him to disgorge all of his ill-gotten gains with prejudgment interest and pay financial penalties. The complaint also seeks permanent injunctive relief.
The SEC’s investigation was conducted by Todd Baker, Ty Martinez, and Jonathan Scott of the Fort Worth regional office. The litigation will be led by Jennifer Brandt and Baker. The SEC appreciates the assistance of the Options Regulatory Surveillance Authority and the Financial Industry Regulatory Authority.