International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Thursday, August 21, 2014

Is it OK to Pick Up Stock Tips at Alcoholics Anonymous?

Bloomberg Law tipped me to an interesting story: Man Who Traded on AA Colleague's News Was Properly Convicted of Insider Trading

SECSEC Complaint

McGee breached duties of trust and confidence that he owed to a [Philadelphia Consolidated Holding Corporation] PHLY senior executive (the "Insider") - with whom he had a long-term relationship through Alcoholics Anonymous ("AA") -- by misappropriating material nonpublic information about the merger negotiations from the Insider. The PHLY executive made the disclosure to McGee in confidential discussions he had with him, including after an AA meeting, about the pressures the Insider was confronting. McGee used the material. nonpublic information to make hundreds of thousands of dollars in ill-gotten profits for himself, and to tip his friend and business associate, Michael Zirinsky.

Criminal Complaint

Alcoholics Anonymous (“AA”) is a fellowship of alcoholics seeking to become and/or remain sober. AA seeks to enable sobriety through open communication and support between and among members. AA members are encouraged to trust and confide in each other both during meetings as well as in one-on-one conversations. One of the means by which AA enables trust and confidence among members is, as its name implies, through member anonymity. Anonymity is among the “Twelve Traditions” that form the guiding written principles for all AA members and participants. Keeping members’ confidences is paramount to AA’s functioning and the success of its members. At AA meetings, members are reminded DOJ-U-S-ATTORNEYS-OFFICEthat information shared among members must remain confidential.

In or about the first week of July 2008, during a discussion that took place immediately following an AA meeting the Executive had just attended with MCGEE, the Executive confided in TIMOTHY MCGEE that his difficulties with drinking were in large part due to the stresses he faced at work as a result of PHLY’s negotiations with a potential acquirer.  At this time, and continuing over the course of the following weeks, the Executive informed MCGEE about the merger discussions between PHLY and Tokio Marine. At all times, the Executive and MCGEE understood that the information regarding PHLY’s impending sale was shared in confidence, and with the expectation that MCGEE not risk exposing the confidence by engaging in stock trades.

FBISealFBI Press Release

In the week following the executive’s disclosure, McGee purchased 10,250 shares of PHLY stock for less than $39 per share. The day after McGee made his final purchase of PHLY stock, PHLY announced that it would be acquired by Tokio Marine, a Japanese insurer, in a cash deal by which PHLY shareholders would receive $61.50 per share of PHLY stock. Just days following the public announcement of the merger, McGee sold 4,750 shares of PHLY stock for $58.50 per share; upon the merger’s consummation on December 1, 2008, McGee received $61.50 per share for his remaining PHLY shares. In all, McGee netted personal profits of approximately $292,000 from his unlawful PHLY trades.

| Permalink


Post a comment