Drew “Bo” Brownstein, the founder and chief executive officer of Denver-based Big 5 Asset Management, was sentenced to one year and a day in prison for trading on inside information about a corporate merger.
U.S. District Judge Robert Patterson in Manhattan today also ordered Brownstein to perform 500 hours of community service and to forfeit $2.44 million. Brownstein also will serve six months house arrest after his prison release and was fined $7,500.
Brownstein, 35, made more than $2.5 million in illegal profits for his hedge fund and for relatives by trading on a tip in advance of Apache Corp. (APA)’s $2.7 billion acquisition of Mariner Energy Inc. (ME) in April 2010, prosecutors said.
“I want to tell you how sorry I am for having made a terrible mistake,” Brownstein told the judge just before his sentencing. “I take full responsibility for my actions and I will have to live with this for the rest of my life.”
Patterson told Brownstein he considered his offense serious.
“Indications are people are complaining,” the judge said. “They’re complaining about the money made on Wall St. Greed is what they’re concerned about and most of us would agree with them.”
While U.S. sentencing guidelines give a range of 37 to 46 months, Brownstein, who pleaded guilty on Oct. 11, had asked for probation with home confinement and community service.
His lawyer, Gary Naftalis, noted that probation officials recommended a term of six months in prison as well as 500 hours of community service because Brownstein had expressed “genuine remorse” for his conduct.
Assistant U.S. Attorneys Michael Levy and Antonia Apps argued in court papers that Brownstein’s crime merited a prison term “far more substantial” than six months.
Prosecutors said probation officers had incorrectly calculated that Brownstein made just $130,000 in illegal profits from the scheme. The bulk of the almost $2.5 million in illegal gains were based on trades he caused his hedge fund to make, prosecutors said. Brownstein benefited from his crimes, both as an investor in the fund and as a recipient of management fees generated by the successful trading, the U.S. said.
In insider trading cases, “we have to provide an adequate deterrence to reflect the seriousness of the crime and to provide a just punishment,” Patterson said today, adding “People think if they see a light sentence, they think ‘why not take a chance?’”
“There is too much greed in this country these days, and it’s not just confined to Wall Street, either,” he said.
The tip originated with H. Clayton Peterson of Denver, a retired former Arthur Andersen partner who served on Mariner Energy’s board of directors, prosecutors in the office of Manhattan U.S. Attorney Preet Bharara said.
Peterson, who was also a director of Re/Max International Inc. and Lone Pine Resources Inc., pleaded guilty to conspiracy and securities fraud in August. His son, Drew, a Denver financial adviser, also pleaded guilty to the same charges in August.
Clayton Peterson admitted passing information about the planned transaction in April 2010 to his son. At his guilty plea, Drew Peterson said he bought shares of Mariner stock based on the tip and passed the information to another unidentified person who also traded on it.
Clayton Peterson was sentenced by Patterson to three months’ home detention and ordered to pay a $400,000 fine in October. Drew Peterson hasn’t been sentenced.
During his guilty plea, Brownstein said he purchased Mariner securities on April 13 and April 14, 2010. On April 13, he admitted having had several phone conversations with Drew Peterson, a lifelong friend, who told him Mariner had agreed to be acquired.
The U.S. Securities and Exchange Commission filed a civil action against Brownstein and Big 5 Asset Management that accused H. Clayton Peterson of tipping Drew Peterson to confidential information about the acquisition of Mariner.
Apache, the largest U.S. independent oil and natural-gas producer by market value, announced April 15, 2010, that it had agreed to buy Mariner Energy for $2.7 billion in cash and stock to boost production and reserves in deep waters off the Gulf of Mexico.
Mariner Energy’s stock rose 42 percent on the news, according to the U.S. Securities and Exchange commission, which filed a civil suit against the Petersons. The purchase was completed on in November 2010.
The case is U.S. v. Peterson, 11-CR-665, U.S. District Court, Southern District of New York (Manhattan).
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