[ by Melanie Gretchen ]

The SEC charged 2 retail brokers for insider trading on nonpublic information ahead of IBM Corporation’s acquisition of SPSS Inc.  The brokers, who formerly worked at a Connecticut-based broker-dealer, were friends and fellow brokers whose trading produced more than $1 million in illicit profit, the SEC complaint said.

SEC Findings and Investigations. In 2009, Thomas Conradt and David Weishaus traded instant messages where they openly discussed their illegal activity.  Conradt had received confidential details about the merger from his roommate, a research analyst who got the information from an attorney working on the transaction who discussed it in confidence.  With this information, Conradt bought SPSS securities and tipped Weishaus, who also traded.

The trading by the pair, based in Denver and Baltimore respectively, didn't end there.  Other downstream tippees purchased common stock and call options in SPSS.  Investors purchase call options when they expect the value to appreciate;  however, the activity by Conradt, Weishaus, and other downstream tippees made up for 76% to 100% of their various brokerage accounts.

SEC Sanctions. Conradt and Weishaus violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, the SEC alleged.  Going forward, the Commission is seeking disgorgement of ill-gotten gains with prejudgment interest and financial penalties, and a permanent injunction against the brokers.  In a parallel action, both are facing criminal charges by the U.S. Attorney’s Office for the Southern District of New York.

"When licensed professionals who are privileged to work in the securities industry violate legal duties and enrich themselves at investors’ expense, it undermines public confidence in the integrity of the markets.  As industry professionals, Conradt and Weishaus clearly understood that what they were doing was wrong, but did so anyway while knowing the consequences they would face if caught." -- Daniel M. Hawke, Director of the SEC’s Philadelphia Regional Office.

Conradt and Weishaus both received law degrees. Conradt is admitted to practice law in Maryland, after he passed the Colorado bar examination administered in February 2012.

For further details, go to [SEC Press Release 2012-245, 11/29/12] and the [SEC Complaint].