Ex-Morgan Stanley broker pleads guilty in insider trading case

Mon Sep 30, 2013 5:56pm EDT

The corporate logo of financial firm Morgan Stanley is pictured on a building in San Diego, California September 24, 2013. REUTERS/Mike Blake

The corporate logo of financial firm Morgan Stanley is pictured on a building in San Diego, California September 24, 2013.

Credit: Reuters/Mike Blake

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(Reuters) - A former Morgan Stanley financial adviser pleaded guilty to an insider trading charge for tipping a childhood friend to Gilead Sciences Inc's plan in 2011 to buy Pharmasset Inc, three days before the $11.2 billion takeover was announced, court and regulatory records show.

Kevin Dowd, 38, on Monday pleaded guilty to conspiracy to commit securities fraud before U.S. District Judge Anne Thompson in Trenton, New Jersey.

The Boca Raton, Florida resident faces up to five years in prison and a $250,000 fine when he is sentenced on January 15, 2014.

Dowd's plea was announced by U.S. Attorney Paul Fishman in New Jersey.

Peter Willis, a lawyer for Dowd, did not immediately respond to a request for comment.

According to court papers, Dowd learned about the pending merger from a Pharmasset director, who had been the largest customer of the Aventura, Florida branch where Dowd had worked.

Prosecutors said Dowd on November 18, 2011 told his friend about the merger, prompting the friend to buy $196,000 of Pharmasset stock and pass on the tip to another investor who bought Pharmasset call options, also betting the stock would rise.

Those bets paid off after the merger of the two makers of antiviral drugs was announced on November 21, 2011, valuing Princeton, New Jersey-based Pharmasset at a roughly 89 percent premium over its share price at the time.

Prosecutors said Dowd's friend netted a $163,621 profit after buying $195,808 of Pharmasset stock, while the other investor netted a $544,706 profit on the stock options.

According to prosecutors, Dowd admitted to receiving a $35,000 cashier's check in exchange for the initial tip.

Dowd's friend and the person tipped by that friend are identified only by their initials in court papers.

Brokerage records show that Dowd worked for Morgan Stanley Smith Barney in Aventura at the time of the tip, but is no longer registered with a brokerage.

Morgan Stanley said after Dowd's arrest in January that it had cooperated with authorities, and that Dowd had been fired in December 2012.

Gilead is based in Foster City, California.

The case is U.S. v. Dowd, U.S. District Court, District of New Jersey, No. 13-cr-00636.

(Reporting by Jonathan Stempel in New York; Editing by Richard Chang)

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Comments (1)
As someone that received insider information and then traded on it in over a hundred deals I can tell you that rule number one is to never pay for any of it using a cashier’s check — cash, kind, or not at all. Rookies.

Interesting that jail time is being sought in this case whereas in regard to Mark Cuban’s inside trading — a case where I can identify actual victims of his actions — the only sanction available is a financial one.

Oct 01, 2013 9:27am EDT  --  Report as abuse
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