Morgan Stanley Adviser Dowd Charged With Pharmasset Tips
Former Morgan Stanley brokerage adviser Kevin L. Dowd was charged with insider trading for tipping a friend ahead of Gilead Sciences Inc. (GILD)’s $11 billion acquisition of Pharmasset Inc., U.S. prosecutors said.
Dowd, 37, who worked at a brokerage in Aventura, Florida, learned that a Pharmasset director told Dowd’s superiors about the deal before it was announced on Nov. 21, 2011, according to a Federal Bureau of Investigation arrest complaint filed today.
Dowd was told not to act on the information yet tipped a childhood friend, identified as J.F., who illicitly made $163,621 on Pharmasset shares, the FBI said. J.F. tipped another friend who made $544,706 on Pharmasset options, the FBI said. In July 2012, agents confronted Dowd, who said he told J.F. to buy stock, while denying he had inside information, the FBI said.
“Dowd admitted that he told J.F., but falsely stated that he had never received information that Pharmasset was going to be acquired by another pharmaceutical company,” Paul Fishman, the U.S. attorney in New Jersey, said in a statement.
The number of people sued by the U.S. Securities and Exchange Commission or charged with insider trading by the Justice Department more than doubled since 2008, according to data compiled by Bloomberg. There were 56 in 2008, 96 in 2009, 67 in 2010, 104 in 2011 and 125 last year. Of those, 22 percent were linked to trades involving health-care stocks.
In exchange for the tip, J.F. gave Dowd a wooden dock for his Jet Skis and a cashier’s check for $35,000, according to the FBI. Dowd used the money to buy an in-ground pool at his Boca Raton home, according to the FBI.
Dowd, who was arrested at his home today, is charged with conspiracy to commit securities fraud and faces as long as five years in prison if convicted.
He appeared today in federal court in West Palm Beach, Florida. A judge released Dowd on a $100,000 bond. He is scheduled to appear in federal court in Newark, New Jersey, on Feb. 1.
Peter Willis, a lawyer for Dowd, didn’t immediately return a call seeking comment on the charges.
The SEC also sued Dowd today in federal court in Newark.
“As an industry professional, Dowd surely knew what he was doing was wrong, but he incorrectly thought that his scheme was clever enough to avoid detection by investigators,” Daniel M. Hawke, chief of the SEC’s Market Abuse Unit, said in a statement.
Morgan Stanley’s wealth management unit has cooperated with the SEC and Justice Department, Christine Jockle, a spokeswoman for the New York-based bank, said in an e-mail.
“Mr. Dowd was in clear violation of company policy and was terminated on Dec. 12, 2012, for behavior that the firm does not tolerate,” Jockle said.
At least six weeks before the acquisition by Gilead, the Pharmasset director confidentially told a Morgan Stanley (MS) manager that his company “was engaged in an auction process involving a sale of the company, had attracted the interest of several large pharmaceutical companies, and was going to be sold,” according to the SEC.
The Pharmasset director served on the Princeton, New Jersey-based company’s board from August 2000 until January 2012 and was the largest customer of the brokerage’s Aventura branch, according to the FBI.
Dowd’s managers told him that he was “prohibited from recommending or trading Pharmasset securities because the office had come into possession of material nonpublic information” about the sale, the SEC said. He also was told not to trade Pharmasset securities in his personal account.
Dowd began work at Morgan Stanley in June 2009, according to the Financial Industry Regulatory Authority. He worked from August 2005 to June 2009 at Citigroup Inc. (C), according to Finra records.
The criminal case is U.S. v. Dowd, 13-mj-6515, U.S. District Court, District of New Jersey (Newark). The SEC case is Securities and Exchange Commission v. Dowd, U.S. District Court, District of New Jersey (Newark).
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