The U.S. Securities and Exchange Commission has been granted partial summary judgment in its case against former Simpson, Thacher & Bartlett employee Steven Metro, who faces a $2 million penalty for sharing information about pending mergers and acquisitions involving clients of his firm.
U.S. District Judge Michael Shipp in Trenton granted the SEC summary judgment on counts based on Section 10B of the Exchange Act and on Section 17A of the Securities Act against Metro but denied summary judgment on a count under Section 14E of the Exchange Act. Shipp also denied the SEC’s request for a permanent injunction prohibiting Metro from future violations of securities law.
Metro said that his plea allocution in the criminal case satisfies counts 1 and 2 but not count 3. To be found guilty of the first two counts he had to have misappropriated confidential information for securities trading purposes in a breach of duty owed to the source of the information and that his use of that information defrauded the principal of the exclusive use of that information. A finding of guilt on the third count would require a showing that he made trades based on material, nonpublic information concerning a tender offer that he knew or has reason to know has been acquired from an insider, either directly or indirectly.
Shipp said Metro has indicated he is willing to stipulate to liability on count 3 if he can reach an agreement with the SEC on the amount of the civil penalty. While the SEC is seeking in excess of $2 million from Metro, he contends that $10,000 is an appropriate fine.
Shipp ordered the parties to hold a settlement conference with U.S. Magistrate Judge Tonianne Bongiovanni over the remaining issues and the question of what monetary penalty is proper.
Metro held the job of managing clerk at Simpson Thacher. He has a law degree from Touro College of Law but was not a practicing attorney. Authorities said that from 2009 to 2014, he accessed information from the firm’s computers to identify clients that were about to participate in a merger or acquisition, sometimes searching on terms such as “merger agreement.”
According to the SEC, Metro would pass information about pending deals to a friend, Frank Tamayo, in a coffee shop or bar with the understanding that Tamayo would use it to make trades.
According to the SEC, Tamayo would then hold a meeting at Grand Central Station with his friend and stockbroker, Vladimir Eydelman. Tamayo would show Eydelman a napkin or Post-It note on which the stock ticker symbol of the company to be acquired had been written. Tamayo also conveyed to Eydelman the appropriate transaction price and timing of the deal. Then, while Eydelman watched, Tamayo would then chew up, and sometimes eat, the note to destroy the evidence, the SEC said.
Tamayo, formerly a mortgage broker, pleaded guilty in September 2014 to conspiracy to commit securities and tender-offer fraud, securities fraud, and tender-offer fraud. Eydelman, who previously worked for Oppenheimer & Co. and Morgan Stanley, pleaded guilty in September to securities and tender-offer fraud, and conspiracy.
The SEC said Metro conspired to profit from insider trading in 13 deals, including a 2009 transaction where Liberty Media Corp. loaned Sirius XM Radio Inc. $530 million, and the 2013 acquisition of OfficeMax Inc. by OfficeDepot Inc. Sirius and Office Depot were Simpson Thacher clients.
The SEC’s attorney in the case was Stephan Schlegelmilch of the agency’s Division of Enforcement. An SEC spokeswoman, Judith Burns, said the agency would not comment on the ruling. Lawrence Lustberg of Gibbons in Newark, who represents Metro, did not return a call. A spokesman for Simpson Thacher also did not return a call.