The SEC has sued a New York father-and-son team for orchestrating an alleged $1.1 million insider-trading scheme in which insider information was exchanged in coded e-mails about golf.
Sean R. Stewart, managing director at Perella Weinberg Partners, routinely tipped off his father, Robert Stewart, CFO of mobile application development company Spiral Toys Inc., about mergers and acquisitions involving clients at two investment banks where he worked, the SEC alleged in a complaint filed in U.S. District Court in New York.
Robert Stewart cashed in on the tips by placing trades ahead of at least a half-dozen merger and acquisiton announcements, generating more than $1 million in profits over a four-year period, according to the SEC.
In return, the younger Stewart received benefits, including $10,000 for his 2011 wedding, according to the SEC.
“Serial insider traders assume a huge risk that we will detect their pattern of trading and connect them to their source of confidential information,” said Daniel M. Hawke, chief of the SEC Division of Enforcement’s Market Abuse Unit. “We have integrated new technological tools to quickly and easily identify relationships among traders and spot suspicious trading across multiple securities.”
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York on Friday announced nine counts of criminal charges against the Stewarts, including conspiracy to commit securities fraud, conspiracy to commit wire fraud, securities fraud and other violations of the antifraud provisions of the federal securities laws.
The elder Stewart recruited a trading partner to help hide the illegal trading and the connection to his son as the source of nonpublic information about investment bank accounts, according to the SEC’s complaint. Stewart and the partner primarily met in person, but also used coded e-mails about golf to discuss their trades.
Trades were conducted in the partner’s account, according to the SEC, with profits shared in the form of small cash payments to avoid creating a paper trail. Stewart and his accomplice also allegedly spread trades over numerous stock options and placed purchases during high-volume trading periods to avoid raising red flags with regulators.
Sean Stewart surrendered himself to authorities in Wisconsin on Thursday. Robert Stewart was arrested in New York and later released on a $500,000 bond.
Perella Weinberg suspended Sean Stewart, who had previously worked at JP Morgan Chase, on Thursday.
"Today's charges against an employee of the firm alleging insider trading activity are unprecedented in our history," the company said in a statement. "The described rogue behavior, if true, violates not just the law, but our principles, our culture and the strict policies and procedures we have in place to protect our clients."