Federal prosecutors in New York this week charged a father-and-son team with insider trading connected with a spate of mergers in the medical device arena.
Sean Stewart, a former executive with JP Morgan who now works for Perella Weinberg Partners, and his father Robert Stewart were charged with using inside information to trade and cause another to trade in the securities of 5 healthcare companies that were acquired between 2011 and 2014.
The elder Stewart was arrested yesterday on conspiracy and insider trading charges at his Merrick, N.Y., home; son Sean surrendered to the FBI in Wisconsin and is due in a Manhattan courtroom May 18, according to the office of the U.S. District Attorney for Southern New York.
"The Stewarts – father and son alike – allegedly engaged in insider trading together to the tune of more than $1 million. And, as alleged in 1 instance, the son’s tip to his father became a gift to himself when his father kicked back some of the proceeds of the insider trading to pay for his son’s wedding," U.S. attorney Preet Bharara said in prepared remarks.
The feds alleged that Sean Stewart 1st tipped his father to the $232 million acquisition of contract research organization Kendle International Inc. by INC Research in 2011, when the younger Stewart was working as an advisor to Kendle on the deal. The elder Stewart made about $7,900 on illicit trading in Kendle stock, the prosecutors alleged. When questioned, the father said he spent the money on his son’s wedding in June 2011, according to the feds.
Apax Partners and a pair of Canadian pension funds agreed to acquire Kinetic Concepts Inc. that July; the elder Stewart began trading in KCI shares based on a tip from the son, but allegedly worried that he was "too close to the source" of insider info on the $6.1 billion deal. Robert Stewart asked an unnamed co-conspirator (and cooperating witness) to make the KCI trades for him. The KCI trades brought in some $108,000 for the Stewarts, according to the prosecutors.
Sean Stewart left JP Morgan in October 2011 to become a managing director at Perella Weinberg, where he allegedly learned of a trio of big medtech deals: Hologic‘s (NSDQ:HOLX) $3.7 billion buyout of Gen-Probe in 2012; the $3.8 billion acquisition of Lincare by Linde AG that same year; and this year’s $12.2 billion union of Becton Dickinson (NYSE:BDX) and CareFusion, according to a press release.
"The profits that Robert Stewart and [the confidential witness] reaped from illegal insider trading in advance of the announcements of these 3 deals totaled over $1 million," according to the U.S. Justice Dept. "In the midst of the scheme, in December 2012, Robert Stewart transferred at least $15,000 to Sean Stewart."
Both Stewarts were each charged with 1 count of conspiracy to commit securities fraud and fraud in connection with a tender offer; 1 count of conspiracy to commit wire fraud; 6 counts of securities fraud; and 1 count of fraud in connection with a tender offer, according to the feds. They face prison terms of up to 20 years for the securities fraud, tender offer fraud, and wire fraud conspiracy charges and 5 years for the conspiracy to commit securities fraud and tender offer fraud charges.