SEC: Remodeled bathroom and cash in a gym bag in return for tips on merger and acquisitions.

The Securities and Exchange Commission announced May 31 insider trading charges against an investment banker and his close friend, a plumber who allegedly helped remodel his bathroom and put cash in his gym bag in return for illicit tips about upcoming mergers and acquisitions.

The SEC alleges that Steven McClatchey had regular access to highly confidential nonpublic information about impending transactions being pursued for investment bank clients.  The Analysis and Detection Center within the SEC Enforcement Division’s Market Abuse Unit detected an illicit pattern of trading by Gary Pusey, who McClatchey allegedly tipped with nonpublic information on 10 different occasions ahead of public merger announcements.

“We will continue enhancing our market surveillance techniques to detect patterns of insider trading and expose schemes, even when alleged perpetrators like McClatchey and Pusey attempt to avoid detection by providing in-person tips and cash payments,” said Joseph Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York also announced criminal charges.

According to the SEC’s complaint filed in federal court in Manhattan:

• The scheme began in early 2014 after McClatchey and Pusey became close friends upon meeting at a marina where they kept their fishing boats.
• One of McClatchey’s job responsibilities was to collect timely information about potential mergers and acquisitions involving clients of the investment bank where he worked in New York City.  McClatchey misused his ready access to confidential information and regularly tipped Pusey.
• Pusey used the misappropriated nonpublic information as he purchased securities in 10 companies before their acquisitions were announced publicly, enabling him to generate $76,000 in illicit trading profits.
• In return for the tips, Pusey provided McClatchey with free services during his bathroom remodel and paid him thousands of dollars in cash that he typically placed in McClatchey’s gym bag while at the marina or handed to him directly in his garage.

The SEC’s complaint charges McClatchey and Pusey with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as Section 14(e) of the Exchange Act and Rule 14e-3.  The complaint seeks a final judgment ordering McClatchey and Pusey to pay disgorgement of their ill-gotten gains plus interest and penalties, and permanently enjoining them from future violations of these provisions of the federal securities laws.

The SEC's investigation was conducted by Mark S. Germann and Charles D. Riely of the Market Abuse Unit with assistance from John Rymas in the Analysis and Detection Center.  Also assisting in the investigation were Sandeep Satwalekar, James D’Avino, and Matthew Lambert of the New York Regional Office.  The case has been supervised by Mr. Sansone.  The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.