Today the SEC charged a former Deloitte Tax partner and his wife, Arnold and Annabel McClellan, with repeatedly leaking confidential M&A information to family members overseas.
Earlier this week, five Brits – including husband and wife James and Miranda Sanders – were charged with insider trading related to information about several merger announcements.
So it turns out that two cases are related.
Annabel McClellan is the sister of Miranda Sanders. Annabel’s husband, Arnold, had access to information related to several M&A deals because he was working on the projects for Deloitte’s San Francisco office. Arnold then allegedly supplied that information to his brother-in-law, James Sanders, who traded on the information, says the SEC.
“The McClellans might have thought that they could conceal their illegal scheme by having close relatives make illegal trades offshore. They were wrong,” said SEC enforcement chief Robert Khuzami.
Here are the basics:
- Arnold McClellan was head of one of Deloitte’s regional M&A teams. He had access to highly confidential information about impending transactions involving Kronos Inc, aQuantive Inc and Getty Images.
- The SEC said that at first, Sanders used the non-public information supplied by the McClellans to purchase small shares of stock. But then as the profits began to increase, Sanders begun taking larger positions, the regulator said.
- Plus, Sanders apparently began to spread the love: colleagues, clients and apparently other relatives also got wind of the impending mergers.
- Profits from the trades reached about $3 million.
The SEC complaint say the McClellans,
[P]rovided advance notice of at least seven confidential acquisitions planned by Deloitte’s clients to Annabel’s sister and brother-in-law in London. After receiving the illegal tips, the brother-in-law took financial positions in U.S. companies that were targets of acquisitions by Arnold McClellan’s clients.
His subsequent trades were closely timed with telephone calls between Annabel McClellan and her sister, and with in-person visits with the McClellans.
Here’s a timeline of the alleged insider dealing that occured in the Kronos deal, according to the SEC complaint:
- November 2006: Arnold McClellan starts advising Deloitte private equity client on Kronos acquisition.
- Jan. 29, 2007: McClellan signs confidentiality agreement.
- Jan. 31, 2007: James Sanders begins buying Kronos spread bets in his wife’s account after a call from Annabel’s cell phone.
- March 11, 2007: Arnold McClellan has a two-hour phone call with client to discuss the acquisition, and then, within an hour, a call occurs from same cell phone to Annabel’s family.
- March 12-14, 2007: Sanders increases the size of his Kronos bets.
- March 16, 2007: Sanders tells another family member that Annabel is his source and explains that they agreed to split profits 50/50.
- March 23, 2007: Deloitte’s client publicly announces Kronos acquisition. Kronos stock price increases 14%; Sanders and others earn ~$4.9 million.
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