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Ex-Deloitte Partner Gets 21 Months for Insider Trades

Thomas P. Flanagan, a former Deloitte & Touche LLP partner, was given 21 months in prison for trading on insider information about the accounting firm’s clients, including Best Buy Co. and Walgreen Co. (WAG)

Flanagan, who pleaded guilty to a single count of securities fraud in August, was also sentenced today to one year of supervised release and fined $100,000 by U.S. District Judge Robert M. Dow in Chicago. Flanagan left Deloitte in 2008, ending an association with the New York-based firm and its predecessors that lasted more than three decades.

“It was stupid, it was arrogant and it was wrong. It was so wrong,” Flanagan -- who turned 65 today -- told Dow before he was sentenced. The ex-certified public accountant said he deeply regretted what he had done.

Flanagan served as an advisory partner and liaison between the audit-management teams of Walgreen, Best Buy and Sears Holdings Corp. (SHLD) and the firm’s auditors, according to the original charging papers filed in July.

His job gave him access to non-public information involving those companies and the technology firm formerly known as Motorola Inc., including quarterly earnings results and potential acquisition targets, according to a plea agreement he signed in August.

Used Accounts

From December 2006 to May 2008, Flanagan traded on the information to reap illegal profits of at least $420,000 for himself, using accounts he owned or controlled including some in the names of family members, according to the agreement. He also passed on information that allowed a relative to make $58,000, according to the document.

Securities fraud carries a maximum punishment of 20 years in prison. Flanagan’s plea agreement called for a term of three to four years in prison, and prosecutors sought at least 37 months.

Benches on one side of the courtroom gallery today were filled with members of Flanagan’s family -- including his wife of 43 years, Betsy, and sons Patrick, 42, Michael, 40, and Brien, 37 -- as well as friends and neighbors.

Citing Flanagan’s plea and devotion to family and community, defense attorney Joel Levin asked Dow to impose a sentence of six months’ incarceration and 1,000 hours of community service.

‘An Aberration’

“Mr. Flanagan’s insider trading represents an aberration from an otherwise exemplary life of devotion to family, church, community and charitable endeavors,” Levin said in an Oct. 19 brief. “In the four years since he resigned from Deloitte and while awaiting the outcome of the pending criminal investigation, he has done everything within his power to make amends for his illegal conduct.”

Levin today told Dow his client was a decent man who had already sustained the loss of his professional license and paid $15 million to settle civil lawsuits filed against him by Deloitte and by the U.S. Securities and Exchange Commission.

Acknowledging the court’s need to impose a sentence that could deter others from committing similar crimes, Levin said six months’ imprisonment wasn’t an insignificant amount of time given his client’s age and wouldn’t be out of line with other insider trading sentences.

‘Scarlet Letter’

He specifically cited the two-year term imposed Oct. 24 upon Rajat Gupta, the former Goldman Sachs Group Inc. (GS) director who leaked stock tips to Galleon Group LLC co-founder Raj Rajaratnam.

Unlike his client, Levin said, Gupta maintained his innocence and forced the government to prove his guilt at a trial.

“There’s no escaping what I did,” Flanagan told the judge, calling his crime “a scarlet letter.”

Prosecutors said Flanagan’s personal history didn’t outweigh the severity of his crime and argued for a punishment that would promote deterrence.

“As in most insider-trading cases, it was not a crime of need or passion,” the U.S. said in a filing. “It was a crime based on greed and an arrogant belief that defendant would not be caught.”

Assistant U.S. Attorney Jason Yonan returned to that theme today in court, addressing the question of why Flanagan would commit such an act.

‘Arrogant Belief’

“He had an arrogant belief that he would get away with it,” Yonan said.

The prosecutor said Flanagan had committed a serious crime that feeds a public perception that the investment world lacks what he called “a level playing field,” necessitating a punishment that will discourage others.

“He needs to be held accountable,” Yonan said. “Fining a millionaire millions of dollars is not general deterrence.”

Dow agreed, noting that Flanagan didn’t need the money generated by the unlawful options trading, which he said was a tiny fraction of his net worth.

“The only explanation I can come up with is hubris,” the judge said.

Flanagan, his wife and his attorney each declined to comment after the proceeding.

Concealed Trades

Flanagan must report to prison on Jan. 15. His lawyer asked Dow to recommend to the federal Bureau of Prisons that Flanagan be incarcerated at its minimum security facility in Yankton, South Dakota.

“Deloitte unequivocally condemns Mr. Flanagan’s actions,” Jonathan Gandal, a spokesman for the firm, said today in an e-mailed statement, reiterating comments made after the ex- partner entered his guilty plea in August.

“Mr. Flanagan concealed from Deloitte his trades in the securities of our clients, lied about his compliance with our independence policies and otherwise circumvented our system for reporting and tracking investments,” Gandal said.

Flanagan and his son Patrick agreed in 2010 to pay more than $1.1 million to settle related insider-trading claims brought by the U.S. Securities and Exchange Commission.

The case is U.S. v. Flanagan, 12-cr-00510, U.S. District Court, Northern District of Illinois (Chicago).

To contact the reporter on this story: Andrew Harris in Chicago at aharris16@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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