A Norwalk man and an "old friend" have been charged in an insider trading scheme that reaped more than $2.6 million in illegal profits, according to a statement from Preet Bharara, U.S. attorney for the Southern District of New York, and Janice K. Fedarcyk, assistant director-in-charge of the New York office of the FBI.
John Bennett, 48, of Norwalk, and Scott Allen, 45, of Atlanta, turned themselves in to authorities in New York on Thursday morning. Each is charged with one count of conspiracy to commit securities fraud and two counts of securities fraud. They face a maximum penalty of five years in prison on the conspiracy charge and 20 years in prison on each of the securities fraud charges. Also on the conspiracy charge, they face maximum fines of $250,000 or twice the gross gain or loss derived from the crimes. For each of the securities fraud charges, the defendants face maximum fines of $5 million or twice the gross gain or loss derived from the crime.
"As alleged in today's complaint, Scott Allen and John Bennett were old friends who chose to profit from that friendship by breaking the law," Bharara said in the statement. "Illegal insider trading has become all too commonplace in all too many quarters, and we will continue our efforts to prosecute and punish those who flout the securities laws."
According to the complaint unsealed in Manhattan federal court, Allen, a former consultant at a global human resources consulting firm, learned material nonpublic information concerning the April 2008 acquisition of Millennium Pharmaceuticals Inc. by Takeda Pharmaceutical Co. and the September 2009 acquisition of Sepracor Inc. by Dainippon Sumitomo Pharma Co.
Before the public announcements of those acquisitions, Allen disclosed the inside information to Bennett, an independent film producer and former investment professional. Bennett, in turn, reaped more than $1.1 million in illegal profits from securities transactions he executed based on the inside information, according to the statement.
Bennett also disclosed the insider information from Allen to a co-conspirator who executed securities transactions in Millennium and Sepracor securities in advance of the public announcement of their respective acquisitions. The combined illegal profits from the trading of Bennett and the co-conspirator in Millennium and Sepracor securities exceeded $2.6 million.
In exchange for providing the inside information, Allen received more than $100,000 in cash payments from Bennett. These cash payments were delivered in person, on more than 20 occasions between April 21, 2008, and Aug. 16, 2010.
Moreover, Allen and Bennett undertook efforts to conceal the insider trading scheme from authorities and to avoid detection. For example, in October 2010, when interviewed at his home by FBI agents, Allen falsely claimed that he had not spoken to Bennett in three or four years when, in fact, he had met with and spoken to Bennett repeatedly through at least July 2010. Rather than use his cell phone or another phone that was traceable to him, Allen repeatedly communicated with Bennett in person and contacted him by using a public phone at LaGuardia Airport.
"Today's charges mark yet another instance of shameless profit-driven peddling of insider information," Fedarcyk said in a statement. "The lengths to which they went to conceal the cash-for-information exchange are the clearest indication these defendants knew what they were doing was criminal. The FBI will continue to scrutinize conduct and root out misconduct in securities transactions."
Assistant U.S. Attorneys Richard C. Tarlowe and Marissa Molé are in charge of the prosecution.
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