SEC Charges 2 With Insider Trading in Mass. Bank Deal

(CN) - The U.S. Securities and Exchange Commission charged a former bank executive and a long-time friend with insider trading in advance of the Eastern Bank Corp.'s purchase of another financial institution in 2010.

In a complaint filed in the federal court in Boston, the SEC alleges that Patrick O'Neill, then a senior vice president at Eastern Bank, passed information on the impending acquisition to Robert Bray, a friend and fellow golfer with whom he frequently socialized at a local country club.

"Country clubs or similar venues may give people a false sense of security that leads them to think they can get away with trading on unlawful stock tips," said Paul G. Levenson, director of the SEC's Boston Regional Office.

"But as in any social setting, people who trade securities based on confidential information they receive are taking a huge risk that their illegal tipping and trading will be identified by the SEC," Levenson said.

O'Neill had been hired by Eastern Bank in January 2010 and was assigned to conduct a due diligence review of Wainwright's loan portfolios, sensitive information that would later be used by Eastern to decide whether to pursue the acquisition.

Based on a tip from O'Neill, in early June 2010, Bray began to unload other stocks and use the accumulated funds to purchase Wainwright securities, shares he'd never invested in before, the government said.

In all, Bray invested more than $288,000 in Wainwright Bank and Trust, and after the public announcement of its acquisition, saw its stock price increase nearly 100 percent.

According to federal prosecutors, Bray sold all of his shares during the next few months for nearly $300,000 in illicit profits.

Investigators began looking into the transactions a short time later, and O'Neill quit his job at Eastern Bank rather than respond to such inquiries, the government said.

Both men were subpoenaed to testify in the SEC's investigation but each asserted his Fifth Amendment privileges against self-incrimination for every question asked of them, including whether they know one another.

O'Neill and Bray are charged with violating the antifraud provisions of the federal securities laws and the SEC's antifraud rule. The complaint seeks disgorgement of ill-gotten gains plus interest and financial penalties as well as permanent injunctions against future violations of the antifraud provisions.

In a parallel action, the U.S. Attorney's Office for the District of Massachusetts today announced criminal charges against O'Neill.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit