Two ex-brokers accused of running a $1.2 million insider-trading scheme tied to International Business Machines Corp. (IBM:US)’s $1.2 billion acquisition of SPSS Inc. were indicted by U.S. prosecutors.
Thomas Conradt, 34, of Denver, and David Weishaus, 32, of Baltimore, were arrested today by the Federal Bureau of Investigation on securities fraud charges, said Peter Donald, a spokesman for the FBI’s New York office. They were scheduled to make court appearances today in Colorado and Maryland.
The two longtime friends learned in May 2009 that IBM, the largest computer-services provider, was planning to acquire software company SPSS, prosecutors in the office of Manhattan U.S. Attorney Preet Bharara alleged in the indictment.
“The defendants knew their behavior was illegal, even messaging before the announcement, ‘I dont want to go to jail,’” Mary Galligan, acting head of the FBI’s New York office, said in a statement. “Time and again, FBI agents arrest those who trade on inside information.”
The information originated from an attorney who was part of the legal team that was advising IBM in the transaction, prosecutors said. That lawyer told a broker-analyst details about the deal, including the names of the parties and the fact that IBM was going to acquire SPSS for a “significant premium” over its market price, according to the indictment. Neither the lawyer nor the broker-analyst were identified by prosecutors.
The U.S. Securities and Exchange Commission filed a related lawsuit against Conradt and Weishaus today in federal court in Manhattan. The SEC said its investigation is continuing.
Both regulators and prosecutors said that the men discussed their insider-trading in instant messages in the weeks before the acquisition was announced.
“We need spss to run up i need that lexus,” Weishaus wrote to Conradt in a July 1, 2009, message cited by federal authorities.
In another exchange that same day, Conradt wrote, “don’t tell anyone else..we gotta keep this in the family.”
Weishaus replied, “Dude, no way. I don’t want to go to jail…that Martha Stewart spent 5 months in the slammer.”
The SEC alleged that the attorney with the inside information confided in the broker-analyst because he sought “moral support, reassurance and advice” related to his new assignment working on the SPSS acquisition, according to the complaint.
The lawyer “expected the research analyst to maintain this information in confidence and refrain from trading,” the SEC said in court papers.
The broker-analyst, described in court papers as “Co- Conspirator 3,” purchased SPSS stock, then shared the tip about the acquisition with Conradt, who was his roommate, according to the indictment.
Conradt then allegedly shared the tip with Weishaus, who passed the information to two unidentified brokers they worked with. The two defendants and their friends all purchased SPSS, eventually earning a total of $1.2 million in illicit profit, the U.S. said.
When the companies issued a press release on July 27, 2009, on IBM’s plan to buy SPSS for about $1.2 billion, or almost $50 a share, SPSS’s share price rose by 41 percent in one day, the U.S. said.
“Thomas Conradt, David Weishaus and their co-conspirators engaged in a chain of illegal tipping simply because they wanted to get rich quick,” Bharara said in a statement.
Conradt and Weishaus were charged with one count of conspiracy and three separate counts of securities fraud. Securities fraud carries a maximum term of 20 years in prison.
Sharon Feldman, a lawyer for Conradt, and Michael Grudberg, a lawyer for Weishaus, didn’t immediately return phone calls seeking comment about the charges.
Contradt was arrested at his office in Louisville, Colorado, and was scheduled to appear today before U.S. Magistrate Judge Kristin Mix in Denver, Donald said.
Weishaus was arrested at his home in Baltimore, and was scheduled to appear before a federal judge today in Maryland, Donald said.
The cases are U.S. v. Conradt, 12-cr-887, and SEC v. Conradt, 12-cv-8676, U.S. District Court, Southern District of New York (Manhattan).
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