Westport Financial Advisor Charged With Insider Trading After Takeover Bid

by Categorized: Corporate finance, Wall Street Date:

The SEC’s aggressive enforcement of insider trading laws continued Friday as a Westport advisory firm founder , I. Joseph Massoud, agreed to pay $1.4 million and exit the industry to settle charges he illegally made $676,000 based on information he received as a bidder for a financial firm.

Massoud, 44, and his firm, Compass Group Management, received information in 2009 about Patriot Capital Funding Group, also of Westport, which was seeking buyers, according to an SEC lawsuit in filed in U.S. District Court in Connecticut and assigned to Judge Robert N. Chatigny in Hartford.

Massoud’s firm had previously formed Patriot Capital and spun it off in a 2005 public offering, and he was the Patriot Capital chairman until 2006.

“For access to the data, Compass Group had to enter into a confidentiality agreement that prohibited its employees from buying Patriot Capital stock,” the Securities and Exchange Commission said Friday.
Despite that, the SEC said, Massoud purchased shares of Patriot Capital starting in May 2009. He later learned from the Patriot Capital CEO that his bid was “waaaaay off,” and he bought more shares, the lawsuit says. In August, after Patriot announced a merger with New York-based Prospect Capital Corp. and its shares rose, Massoud sold all of his shares at a profit.

“Massoud abused his access to nonpublic data for what turned out to be a short-term personal gain,” said John T. Dugan, associate director of the SEC’s Boston Regional Office. “As a result of the SEC’s action, Massoud must pay back double what he made in the scheme and he can never work in the securities industry again.”

In agreeing to the settlement, Massoud neither admitted nor denied the allegations. His lawyer, Robert J. Anello of Morvillo, Abramowitz, Grand, Lason, Anello & Bohrer in New York, said he was not aware of any criminal investigation separate from the civil charges filed by the SEC.

“Mr. Massoud is pleased to have been able to resolve this personal trading matter. He has helped build significant value for shareholders and investors over the last 15 years and looks forward to future endeavors.”

The charges follow last week’s landmark SEC insider trading case against SAC Capital, which implicated but did not charge Steven A. Cohen, the billionaire founder of SAC, of Greenwich.

If the SEC charges against Massoud are correct, it seems like an exceptionally brazen offense, requiring investigators only to search readily available records.  Insider traders who thought the agency would never bother to go after them may be in for a bit of a surprise.

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