The former CEO of Dennard-Lascar Associates has been charged with insider trading by the SEC, amid claims he avoided losses of more than $313,000 over a 13-month period.
Stephen Gray, who was fired by the firm in October 2012 when it learned of the SEC investigation, opened his only trading account in September 2009, using funds borrowed from his life insurance policy. The ‘overwhelming majority’ of his trades involved securities of Dennard-Lascar Associates clients, says the SEC.
In one case, the regulator says Gray used material, non-public information from a Men’s Wearhouse quarterly earnings press release, issued on May 5, 2011, citing higher-than-expected earnings. ‘Gray made an electronic calendar appointment for himself on April 29 with the subject: Buy MW stock ahead of early June earnings release,’ according to a statement. After initially holding some securities for months at a time, by 2011 Gray began ‘engaging in more risky and lucrative short-term options trades’.
In another example, information from a draft press release compiled in late 2011 for Powell Industries, announcing that its financial statements for the second and third quarters would be restated, was used by Gray to buy ‘15,000 Powell put options between October 18 and November 3,’ says the SEC. ‘All of these options had the shortest term available. Powell issued the press release on November 8, and its stock price declined by 22 percent. Gray immediately sold his options for a profit of $82,570.’
Gray now faces a fine and an order to disgorge his ‘ill-gotten gains’. The SEC is also calling for him to be barred from holding the role of officer or director of a public company.
‘As head of an investor relations firm that helped clients prepare announcements of material events, Gray had unique access to extremely sensitive and confidential information before the rest of the world received it,’ says David Woodcock, director of the SEC’s Fort Worth regional office in a statement. ‘Gray boldly abused his position for the sake of illegal insider trading profits.’
David Peavler, associate director of the Fort Worth regional office, adds: ‘While Gray was personally requiring company employees to sign copies of the policies he wrote, he was insider trading.’
