Former Nasdaq Stock Market Managing Director Donald Johnson was sentenced to 3 1/2 years in prison for using information obtained from his position with the exchange to engage in insider trading and ordered to pay back $755,066 he made from illegal trades.
Johnson, 57, who pleaded guilty in May to one count of securities fraud, was sentenced today in federal court in Alexandria, Virginia. He faced as many as 20 years at sentencing, though U.S. sentencing guidelines recommend a 37 to 46 month range. The judge said Johnson deserved the 42-month sentence because he violated his duty to investors.
“The conduct fundamentally compromises the integrity of the securities market,” U.S. District Judge Anthony Trenga said, adding that Johnson’s case is “sad and tragic” and “directly undermined the confidence the investing public has in the securities exchange.”
Johnson bought and sold shares of five Nasdaq-listed companies based on inside information from 2006 to 2009, he said at his plea hearing, and often made the trades from his work computer at Nasdaq, according to a lawsuit filed by the U.S. Securities and Exchange Commission in Manhattan federal court.
At his sentencing hearing today, Johnson, wearing a dark suit and yellow tie, expressed remorse to the judge, saying he wanted to “make amends.”
“If I had to come up with a word for what I did, it is stupidity,” Johnson said. “There aren’t any answers to explain my activity.”
Johnson, a former managing director at Nasdaq’s market intelligence desk in New York, admitted making more than $640,000 from the illegal trades. Among the shares he traded was United Therapeutics Corp. (UTHR) based on inside information about test results for the drug Viveta, now called Tyvaso, and about the approval of the drug, the Justice Department said.
“Insider trading is an insidious crime,” said Justin Goodyear, a trial attorney with the fraud section of the U.S. Justice Department’s criminal division at the hearing today. “He took advantage of his position of trust and used information for his own benefit.”
“Today’s sentence should leave no doubt in the minds of investors inclined to cheat that insider trading is a serious crime, with serious consequences,” Assistant U.S. Attorney General Lanny Breuer said today in an e-mailed statement.
“He learned what every other trader on Wall Street must now realize: We’re watching, and when you’re caught you’ll face serious time in prison,” Breuer said.
In the case of Pharmaceutical Product Development Inc. (PPDI), Johnson bet the stock would rise when the public learned it would be included in the Nasdaq-100, he admitted in his plea.
“The penalties of these actions are nothing short of crushing,” said Johnson’s defense lawyer Jonathan Simms, who asked for a jail term of no more than 18 months during today’s hearing. “This man has endured a lot.”
Johnson used a brokerage account in his wife’s name to conceal the illicit trades, the Justice Department said. Other securities he traded based on inside information were Central Garden and Pet Co., Digene Corp., Idexx Laboratories Inc. and Pharmaceutical Product Development Inc., according to the government.
Nasdaq OMX said in May that it was cooperating with the probe. The second-largest U.S. exchange operator, Nasdaq OMX is one of only two venues in the country for public companies to list their shares. Those companies often supply the exchange with confidential financial information, such as earnings reports, which Johnson handled. Nasdaq spokesman Frank De Maria wasn’t immediately available for comment on the sentencing.
Nasdaq OMX, based in New York, opened its market intelligence desk in 2002, offering companies analysis of their stocks’ trading and market statistics and information. Nasdaq OMX got about 19 percent of its first-quarter revenue from its global listing services unit, which includes annual fees charged to companies it lists.
The case is U.S. v. Johnson, 11-00254, U.S. District Court, Eastern District of Virginia (Alexandria.)
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