Drew “Bo” Brownstein, the founder and chief executive officer of Denver-based Big 5 Asset Management, pleaded guilty to trading on inside information about a corporate merger.
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.’s $2.7 billion acquisition of Mariner Energy Inc. in April 2010, prosecutors said.
“I’ve severely disappointed my family, colleagues, investors and friends,” Brownstein told U.S. District Judge Robert Patterson in Manhattan federal court today. “I’m truly sorry.”
The sentencing guideline is 37 to 46 months with the plea agreement, the judge said. Brownstein, who pleaded guilty to one count of securities fraud, will be sentenced on Dec. 20. He was released on a $500,000 personal recognizance bond.
“You had inside information about the fact that Mariner’s stock would probably go up because it was about to be acquired by another company,” Patterson said to Brownstein.
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 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, pleaded guilty to the same charges.
Clayton Peterson, who was appointed to Mariner’s board in March 2006, said he passed information about the planned transaction in April 2010 to his son. At his guilty plea, Drew Peterson, 35, said he bought shares of Mariner stock based on the tip and passed the information to another unidentified person who also traded on it.
Brownstein said in court today that he purchased Mariner securities on April 13 and April 14, 2010. On April 13, he said, “I had several phone conversations with Drew Peterson, a lifelong friend, who told me Mariner had agreed to be acquired.”
Separately, the U.S. Securities and Exchange Commission today said it added Brownstein and Big 5 Asset Management as defendants to its August complaint that accused H. Clayton Peterson of tipping Drew Peterson to confidential information about the acquisition of Mariner. The SEC said Brownstein made about $5 million from trading Mariner securities.
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 Nov. 10.
The case is U.S. v. Peterson, 11-CR-665, U.S. District Court, Southern District of New York (Manhattan).