2 IT specialists settle insider trading charges
PORTLAND, Ore. (AP) — A worker came from the IT department of a Central Oregon health insurance business a few years ago to fix an email problem for the CEO. What he found on the boss's computer proved impossible to ignore or resist — confidential merger documents being sent to a competitor.
Within a day, a federal complaint says, the worker and his supervisor at Clear One Health Plans were taking advantage of their insider information. The two bought shares in Clear One and a few weeks later began selling them after PacificSource Health Plans acquired Clear One.
The stock rose 150 percent on news of the merger and the two cleared $70,000, the U.S. Securities and Exchange Commission said in a statement Wednesday announcing that Daniel Vance and Blake Wellington had been caught and agreed to pay penalties to settle charges of insider trading.
"Information technology professionals are often privy to a wealth of highly confidential and sensitive information through their access to corporate networks and email systems," said Marc Fagel, director of the SEC's San Francisco Regional Office. "Companies need to be able to rely on their IT staff to safeguard this information, but Vance and Wellington instead exploited their positions for personal enrichment."
Neither Wellington, 46, of Hillsboro, nor Vance, 40, of Bend admitted or denied wrongdoing in the settlement. Vance's attorney, Bill Kimball, declined comment Wednesday and Wellington's lawyer did not return a phone message.
Clear One CEO Patricia Gibford emailed Vance on Dec. 16, 2009, after she and a corporate communications employee had trouble sending email messages with attachments to the CEO and others at PacificSource. The attachments included information about the merger, including a proposed timeline, according to the complaint filed in U.S. District Court in Eugene.
Later that day, Vance told Wellington how the CEO had trouble sending the information to PacificSource.
Wellington bought more than 3,700 shares between Dec. 17 and Dec. 24 at prices ranging from $10.25 to $10.50 per share. Vance bought 1,225 shares at prices ranging from $9.75 to $10.35.
Clear One and PacificSource announced the merger Dec. 30 and the share price skyrocketed to $25.25. The pair immediately began selling their shares. Wellington made $55,891 and Vance got $17,509.
Though the charges only relate to shares purchased after the email problem, the complaint says the suspicious activity began in late October, three days after Clear One executives and its board of directors held a conference call to discuss terms of the potential acquisition.
Wellington and Vance, neither of whom had ever owned Clear One stock, started snapping up shares and took "unusual steps" to finance their purchases, the SEC said.
Vance, who had just emerged from bankruptcy, borrowed $5,285 from his 401 (k) and sold his truck and computer equipment. Wellington, meanwhile, borrowed $25,000 from an online lending site. He identified the purpose of the loan as: "Investing in a local business with great prospects."
To settle the charges, Wellington agreed to relinquish his ill-gotten gains and pay a $55,891 penalty. Vance agreed to give up his trading profits and pay a $17,509 penalty.
Wellington left the company in May 2010 while Vance continues to work for PacificSource, the SEC said.
Michael Dicke, associate regional director in the SEC's San Francisco office, said the agency has not seen an increase in such insider-trading cases, but it's a reminder that companies need to be aware that IT professionals have access to lots of information and workers can't trade on what they see.
"Even if it's not a huge amount of money, the government might come to their door," Dicke said.
Follow Steven DuBois at twitter.com/pdxdub.