Posted on: July 5, 2023, 03:10h.
Last updated on: July 5, 2023, 03:43h.
The Securities and Exchange Commission (SEC) recently levied insider trading charges against two men for trading on nonpublic information and a transaction involving Penn Entertainment (NASDAQ: PENN) was one of the deals from which the duo profited.
The SEC alleges that Steven Teixeira, the chief compliance officer at an international payment processing firm, fed information to his friend Jordan Meadow, a registered investment representative at New York-based broker-dealer Spartan Capital Securities.
According to legal documents recently unsealed in a Manhattan federal court, Teixeira swiped information from his girlfriend’s computer while they were working from home during the early stages of the coronavirus pandemic. She was an employee of an investment bank the SEC didn’t name, but the Wall Street Journal reported she formerly worked for Morgan Stanley. She was privy to mergers and acquisitions transactions that hadn’t yet been publicly announced.
It’s believed one of those deals was the Aug. 5, 2021 announcement by Penn Entertainment (NASDAQ: PENN), then Penn National Gaming, that it was paying $2 billion in cash and stock to acquire Score Media and Gaming to bolster its footprint in Canada.
How the Scheme Went Down
Penn’s takeover of Score Media is one of several deals Meadow and Teixeira profited from prior to official announcements. It’s alleged the latter used a friend to funnel information obtained from his girlfriend’s laptop to Meadow.
As alleged, Teixeira then used the information to purchase call options on several issuers ahead of the announcement of the deals and tipped the information to his friends, including Meadow, so that they could trade as well,” according to the SEC. “The scheme allegedly generated illicit profits of approximately $28,600 for Teixeira, while Meadow made more than $730,000.”
The commission adds that, using information obtained from Teixeira, Meadow recommended options trades to his clients, helping them reap significant financial windfalls while he generated commissions.
While the SEC doesn’t get into specifics of the various trades, Bloomberg reported that Meadow allegedly bought more than 770 call options, presumably in Score Media, prior to Penn announcing its takeover of the Canadian firm. That helped his clients post gains in excess of $5 million.
Calls are the options contracts traders purchase when they believe the underlying security will appreciate in value. It’s likely Meadow bought calls on Score Media because acquisition targets typically rise when the news is made public.
Defendants Facing Civil Penalties, Criminal Charges
The U.S. Attorney’s Office for the Southern District of New York filed criminal charges against Meadow and Teixeira. In cooperation with the government, Teixeira pleaded guilty to 12 counts, including securities fraud.
The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges Teixeira, of New York, and Meadow, of New Jersey, with violating the antifraud provisions of the federal securities laws and seeks permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and bars on Meadow and Teixeira serving as officers or directors of public companies,” according to the statement.
The SEC is taking an increasingly hard line against those accused of insider trading. At the end of June, the commission charged a former Pfizer (NYSE: PFE) staffer with insider trading ahead of a COVID-19 vaccine announcement and levied charges against several staffers of the special purpose acquisition company (SPAC) being used to take former President Trump’s Truth Social social media company public.