MANHATTAN (CN) - The SEC on Wednesday added a third defendant to an inside-trading case accusing three men of making $1 million by trading ahead on confidential information that IBM was about to buy SPSS, a software company.
The SEC added Trent Martin to its federal complaint against brokers Thomas C. Conradt and David J. Weishaus, whom it charged with inside trading on Nov. 29.
Martin fled to Australia after learning about the SEC investigation, and now lives in Hong Kong, the SEC said in a statement.
The SEC claims that Martin was the source for Conradt and Weishaus, and that the inside trading "yielded more than $1 million in illicit profits."
According to the complaint: "In late May 2009, Martin learned nonpublic, material information regarding the pending SPSS acquisition from his close friend (the 'Associate'), an associate at a New York law firm (the 'Law Firm') who worked on the acquisition. Martin misappropriated the information and purchased SPSS securities on the basis of that information. He also tipped his roommate, Conradt, who also illegally traded in SPSS securities. Conradt, in turn, tipped defendant Weishaus. The downstream tipping continued to, at least, three other registered representatives of the broker (referenced herein as 'RR1,' 'RR2,' and 'RR3'), each of whom worked with Conradt at the Broker's New York City office. Ultimately, the trades placed by Martin, Conradt, Weishaus, and the three registered representatives, resulted in ill-gotten gains exceeding $1 million."
The SEC added in its statement: "Martin was specifically named as their source in instant messages between Conradt and Weishaus about their illegal trading."
The SEC apparently does not blame the attorney who worked on the deal for the alleged inside trading. The agency said in its statement: "The SEC alleges that Martin's attorney friend expected him to maintain information in confidence and refrain from illegal trading or disclosing it to others. The attorney sought moral support, reassurance, and advice when he privately told Martin about his new assignment working on the IBM-SPSS acquisition. The lawyer disclosed to Martin such details as the anticipated transaction price and the identities of the acquiring and target companies while he was describing the magnitude of the assignment."
However, the SEC added, "Martin attempted to purchase SPSS common stock on the very first business day after learning the nonpublic information from his friend. His first three orders were canceled because he did not have sufficient funds in the account to make the purchases, but he later wired $50,000 from his checking account into his brokerage account to purchase SPSS shares," according to the SEC statement.
Martin, however, "is a licensed professional who knowingly disregarded insider trading laws to enrich himself, and then fled the United States when he learned of our investigation," the SEC's Philadelphia Region Director Daniel Hawke said in the statement.
The SEC seeks disgorgement, penalties and injunctions.
IBM announced on July 28, 2009 that it was about to buy SPSS for $1.2 billion, according to contemporary news reports. The deal was completed on or by Oct. 1, 2010. SPSS made software for market research and statistical analysis.
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