[ by Melanie Gretchen ]

The founder and president of a former Denver-based registered investment adviser agreed to settle SEC charges that he reaped "substantial profits using insider information from the former CEO of Delta Petroleum Corp about an impending investment in the company. 

SEC Findings and Allegations. Scott Reiman, age 48, is the founder and president of Hexagon, Inc., a private company that invests in marketable securities, real estate, private equity, venture capital, and oil and gas.  At the time of the alleged conduct, Hexagon, Inc. was an investment adviser.  Reiman resides in Denver, CO.

The case involves alleged insider trading in Delta Petroleum securities in advance of the 12/31/07 announcement that Tracinda Corporation had agreed to purchase a 35% stake in Delta Petroleum for $684
million.  During the weeks leading up to the public announcement, Reiman received material nonpublic information from Delta Petroleum’s CEO Roger Parker, and then traded on the basis of that information. 

Reiman allegedly bought Delta stock or option contracts on 3 occasions in late 2007, each time shortly after speaking with Delta's former chief, Roger Parker.  Five years after the event - in late 2012 - the SEC charged Parker with leaking the news that Beverly Hills-based private investment firm Tracinda Corp had agreed to buy a 35% stake in Delta for $684 million; in October, the SEC charged Parker's friend, Reiman, with with trading based on Parkers' tips.  Tracinda paid the equivalent of $19 a share.

• On 11/28/07, Parker and Reiman spoke by telephone.  Minutes later, Reiman purchased 11,300 shares of Delta Pete and 1,000 Delta Pete call options with a strike price of $17.50 that would expire March 2008.  At the time, Delta Pete shares were trading at $13.60.

• On 12/3, Parker and others met with Tracinda’s management about Delta Pete’s business and the potential investment. Later, Parker called Reiman, who bought an additional 500 Delta Pete call options.

• On 12/14, shortly after speaking with Parker, Reiman purchased 500 additional Delta Pete call options.

SEC Sanctions. Reiman agreed to pay, within 14 days, $398K in disgorgement, $94K in prejudgment interest, and $398K in penalties.  Reiman also agreed to be barred from the securities industry and to be barred from acting as an officer or a director of a publicly traded company for a minimum of 5 years.

For further details, go to [Reuters, 4/16/13].

To contact Melanie Gretchen: melanie@compliance-insights.com.