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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23189 / February 5, 2015

Securities and Exchange Commission v. John Gray et al., Civil Action No. 03:15-cv-00551

The Securities and Exchange Commission today charged a stock research analyst, a corporate insider, and two others involved in a California-based insider trading ring that generated nearly $750,000 in illegal profits by trading in advance of four corporate news announcements.

The SEC alleges that John Gray, then an analyst at Barclays Capital, and his friend Christian Keller traded on confidential merger information that Keller learned while working in finance at two Silicon Valley-based public companies. Gray and Keller attempted to conceal the trades by placing them in a brokerage account held in the name of Gray's friend Kyle Martin. Gray also tipped a fourth participant, Aaron Shepard, with nonpublic information so he could trade in advance of some of the corporate announcements.

Gray, Keller, Martin, and Shepard have agreed to settle the SEC's charges by paying more than $1.6 million combined.

According to the SEC's complaint filed in federal court in the Northern District of California, Gray was primarily responsible for placing the trades in Martin's account. Gray and Martin also placed additional trades in other accounts based on Keller's confidential information that Gray shared with Martin. Gray provided Keller kickbacks in cash from the trading profits.

The SEC alleges that Gray and Keller first traded on confidential merger information that Keller learned while employed as a financial analyst at Applied Materials Inc. They illegally traded ahead of the company's acquisitions of Semitool Inc. in 2009 and Varian Semiconductor Equipment Associates in 2011. Keller left Applied Materials and joined Rovi Corporation in 2012 as a vice president for investor relations and finance. The scheme continued as they used confidential information that Keller learned as an insider to profitably trade Rovi securities ahead of negative news announcements by the company about its 2012 first and second quarter financial results.

The complaint charges that Gray, Keller, Martin, and Shepard violated Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 ("Exchange Act"), and that Gray, Keller, and Martin also violated Section 14(e) and Rule 14e-3 of the Exchange Act. All defendants agreed to settle the SEC's charges, without admitting or denying the allegations, by consenting to the entry of judgments permanently enjoining them from violating the relevant securities laws. Pursuant to the judgments, the defendants agreed to make the following payments:

  • Gray agreed to pay disgorgement of $287,487.55, prejudgment interest of $21,836.88, and a penalty of $448,876.03. Gray also agreed to be barred from the securities industry and from participating in penny stock offerings.
  • Keller agreed to pay disgorgement of $52,000, prejudgment interest of $4,002.03, and a penalty of $417,468.73, which represents the total profits from the secret trades placed in Martin's brokerage account. Keller also agreed to be barred from serving as an officer or director of a public company for 10 years.
  • Martin agreed to pay disgorgement of $243,276.10 plus prejudgment interest of $21,404.28, and Shepard agreed to pay disgorgement of $161,388.36 plus prejudgment interest of $9,633.07. They are not being assessed additional penalties due to their significant cooperation during the SEC's investigation.

The SEC's investigation was conducted by Jennifer J. Lee and supervised by Steven Buchholz of the San Francisco Regional Office, with assistance from John Rymas of the Market Abuse Unit of the Philadelphia Regional Office. The SEC appreciates the assistance of the Financial Industry Regulatory Authority, and the Options Regulatory Surveillance Authority.

 

http://www.sec.gov/litigation/litreleases/2015/lr23189.htm


Modified: 02/05/2015