U.S. Judge Orders Ex-Brokers to Pay Almost $1 Million to SEC

  • Both brokers won voiding of insider-trading cases last year
  • Judge says the penalties are proceeds of the tipping scheme

Two former brokers who won the voiding of their criminal insider-trading cases last year were ordered to pay the SEC almost $1 million in civil penalties which a federal judge said were the proceeds of their scheme to trade ahead of a 2009 IBM Corp. acquisition.

Thomas Conradt was ordered to pay the U.S. Securities and Exchange Commission $980,229 which U.S. District Judge Jed Rakoff said were the profits made by Conradt and three others who were recipients of tips about International Business Machines Corp.’s $1.2 billion acquisition of SPSS Inc. Conradt’s former roommate, Trent Martin, was ordered to pay $7,625, which Rakoff said was his profit from trading on the tips.

Martin told Conradt about the IBM deal in exchange for repairs in his apartment, according to the SEC. 

Regulators say tips about IBM’s acquisition of SPSS started with a friend of Martin who was a lawyer at Cravath, Swaine & Moore LLP. The attorney told Martin, who passed it on to Conradt, who then shared it with several colleagues at Euro Pacific Capital Inc. where he worked.

Guilty Pleas

A federal judge in Manhattan last year threw out the guilty pleas of Conradt, Martin and three others after a federal appeals court issued a sweeping decision that required prosecutors to provide more evidence to prove insider-trading cases. 

The ruling said that, to be found guilty of insider trading, defendants must know their tips came from someone who not only had a duty to keep them secret but also got a benefit for leaking them.

Defense lawyers in the IBM case pounced on the appellate ruling, saying the case was weak because of the long tipping chain between the source of the leaked data and their trader clients. 

The case is U.A. v. Conradt, 1:12-cr-00887, U.S. District Court, Southern District of New York (Manhattan).

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