SEC Charges Inside Trader Who Made a 3000% Profit
The Securities and Exchange Commission issued Press Release 2011-166 announcing that it had charged a Californian with insider trading for gaining inside information from his girlfriend. According to the release, Toby G. Scammell made a 3000% profit on trades he made before Marvel Entertainment was taken over by Walt Disney Company. Scammell, who was employed with an investment group, began buying Marvel call options in August 2009 using money he had been authorized to use in his brother’s account while he was in Iraq. The SEC is seeking the disgorgement of the illegal profits with prejudgment interest and monetary fines.
According to court documents, it is alleged that Scammell got information from his girlfriend about confidential information detailing the takeover of Marvel by Disney, including the acquisition date and the $50 per share acquisition price. After getting the information, Scammell made the trades based on the non-public information before the deal was announced. After the announcement on August 31, 2009, the Marvel stock shot up over 25% and Scammell sold the options he had bought. The SEC also said that Scammell searched for “insider trading”, “material non-public information” and “Rule 10b-5” on his computer prior to making his trades and ahead of the announcement of the takeover. The Director of the SEC’s Los Angeles Regional Office, Rosalind R. Tyson, said that “Scammell exploited his romantic relationship for a financial windfall. His misuse of the confidential information gave him an unfair and illegal edge over other traders in the markets.”
The SEC has alleged in its complaint that the girlfriend and Scammell lived together and discussed that she was working on a huge project for Walt Disney Company, but did not give any specific details. However, in discussions about her application to business school they would talk about using her work on the Disney acquisition as a topic for her essays. It is alleged that Scammell got the details of the takeover from overheard conversations about Marvel, confidential documents or from information received by her on her Blackberry, which he had the password to.
The specifics of Scammell’s trading are as follows. He apparently had no money of his own to invest so he was forced to use the money left in his control by his brother who was overseas. He used that money to make over $5,400 worth of purchases of Marvel call options. The options had strike prices of between $50 and $45, notwithstanding the fact that the stock had not traded higher than $41.74. When he sold the options after the public announcement, he pocketed a huge profit of over $192,000, or a 3000% gain in less than thirty (30) days. According to the SEC documents, neither Scammell’s brother or girlfriend were ever told of his plan and the ultimate result.