Two stockbrokers were charged with insider trading tied to International Business Machines Corp.’s $1.2 billion acquisition of software company SPSS Inc., in a probe that has already yielded three guilty pleas.
Daryl Payton, 38, and Benjamin Durant III, 37, pleaded not guilty to one count of conspiracy and five counts of securities fraud in an indictment unsealed in Manhattan federal court. The two men, arrested this morning in New York by the Federal Bureau of Investigation, were each released on $250,000 bond set by U.S. Magistrate Judge Michael Dolinger.
Payton and Durant were part of a group of friends who traded on the IBM tip, the U.S. said. When the SPSS deal was announced on July 28, 2009, the pair met with three other co-conspirators at a New York hotel to discuss a cover story, according to Manhattan U.S. Attorney Preet Bharara.
“Benjamin Durant and Daryl Payton not only acquired inside information about a corporate acquisition and made illegal profits from it, but they colluded with others to conceal their crime,” Bharara said in a statement.
Peggy Cross-Goldenberg, a lawyer for Durant, and Jim Roth, an attorney for Payton, declined to comment about their clients after court.
The arrests are the latest in a federal crackdown by Bharara’s office and the FBI on insider trading at hedge funds, technology companies and so-called expert networking firms. Payton and Durant are among at least 88 people who have been charged since 2009, with 81 having been convicted, most after guilty pleas.
Payton, Durant, David Weishaus and Thomas Conradt were employed as brokers at Euro Pacific Capital Inc., according to the Financial Industry Regulatory Authority.
“They all worked together at the same brokerage firm here in New York City and they all made a substantial amount of money on inside information, hundreds of thousands of dollars,” Assistant U.S. Attorney John Zach said today at the arraignment.
Payton and Durant were also sued by the U.S. Securities and Exchange Commission, which alleged the two made more than $290,000 in illegal profit.
After getting the tip from an associate at the New York law firm representing IBM, Trent Martin passed the information to his roommate, Conradt, the SEC said. Conradt immediately shared the information with Weishaus, a friend, who tipped off his co-workers Payton and Durant, according to the U.S.
Martin, Conradt and Weishaus all pleaded guilty last year and await sentencing.
Payton and Durant bought securities in SPSS in the days leading up to the announcement of the acquisition. When the deal was made public, the software company’s stock rose by 41 percent in a day, earning Durant $53,000 in illegal profit and Payton $243,000, the SEC said.
After Euro Pacific was subpoenaed in November 2009 by the SEC as part of its investigation, Payton, Durant, Conradt and Weishaus were questioned by the broker and later fired, said Andrew Schiff, director of marketing for the company.
“The firm has been cleared by the SEC and Finra and had control systems in place to detect this kind of conduct,” Schiff said in a phone interview.
The criminal case is U.S. v. Martin, 12-cr-00887, the civil case is U.S. Securities and Exchange Commission v. Payton, 14-cv-04644, U.S. District Court, Southern District of New York (Manhattan).