A former partner at a New Jersey broker-dealer has been arrested and charged with participating in an insider trading scheme that the U.S. Attorney’s Office said netted him $3.4 million in illegal profits.
Christopher Matthaei, 44, of Breille, N.J., was arrested yesterday and charged with one count of securities fraud and one count of securities fraud conspiracy after the DOJ said he gained confidential inside information from a close friend at a Toronto-based asset manager about mergers involving special-purpose acquisition companies, or SPACs.
According to the government’s complaint, Matthaei led and managed an events-driven group at his broker-dealer, a group he created in or around 2010 “and which evaluated, among other things, corporate mergers and acquisitions. In that role, Matthaei’s responsibilities included managing client relationships, business development, and sales trading.”
The complaint did not name his firm, though according to the Financial Industry Regulatory Authority’s BrokerCheck page, a Christopher Jacob Matthaei worked at Red Bank, N.J. firm Elevation LLC from 2010 to 2022 and is no longer registered with Finra.
Matthaei’s co-conspirator was not named and not charged by the New Jersey District Attorney’s Office in its complaint. But he was identified as Sean Wygovsky in a parallel action by the Securities and Exchange Commission and named as a defendant in the SEC's civil suit.
Wygovsky was arrested in Austin, Texas, in 2021 and charged with engaging in a multi-million dollar front-running scheme by the U.S. Attorney’s Office for the Southern District of New York. (Front-running involves trading ahead of large orders that are not yet public ahead of other market participants.)
News sources identified Wygovsky’s employer as Toronto firm Polar Asset Management. In September 2021, a $4.3 million money judgment was entered against Wygovsky for one of the counts.
According to the SEC, “From May 2020 until April 2021, Wygovsky … tipped Matthaei material nonpublic information in advance of at least seven merger announcements involving [SPACs]. Wygovsky learned material nonpublic information about SPAC mergers through his employment at the asset manager, which was involved in financing transactions for the mergers. The information Wygovsky provided to Matthaei concerning SPAC mergers was confidential and Wygovsky had an explicit duty to [the] asset manager not to share it with Matthaei.”
The SEC claimed that Wygovsky tipped Matthaei information. To avoid detection, the agency said he sent communications through Telegram, an encrypted messaging application, because it could not be monitored by Polar or Elevation.
The non-public information derived from SPACs seeking “PIPE financing” from Wygovsky’s asset management firm, (“PIPE” means “private investment in a non-public entity.”). This revealed companies’ non-public plans to acquire or merge with others.
“Those SPACs were placed on the asset management firm’s restricted list, meaning that the firm’s employees were prohibited from buying or selling the SPACs’ securities, either personally or via another person or third party,” the DOJ said.
The criminal complaint adds that even though Matthaei’s co-conspirator knew about the trading restrictions, he shared the non-public information with Matthaei anyway, knowing Matthaei would trade in these SPACs.
After receiving the non-public information, the DOJ’s complaint said, “Matthaei purchased the SPACs’ securities using his personal brokerage accounts, and he profited from those trades after the securities increased in price following the public announcement of, or Bloomberg news reports discussing, their respective acquisition or mergers.”
The scheme resulted in Matthaei raking in more than $3 million in illegal trading profits, the DOJ said.
“In June 2020, Matthaei paid for a private plane and extended trip with the co-coconspirator and their families to a luxury resort on the island of St. Barth, where they continued to engage in the insider trading scheme,” the Department of Justice said.
U.S. Attorney Philip R. Sellinger announced Matthaei’s arrest on Thursday.
The securities fraud count carries a maximum penalty of 20 years in prison and a $5 million fine, the DOJ said, and the securities fraud conspiracy count carries a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gross amount of gain or loss from the offense, whichever is greatest.
The government’s complaint was filed in the United States District Court for the District of New Jersey.