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Ex-Morgan Stanley broker pleads guilty in insider trading case

Posted by: Admin | Posted on: September 30th, 2013 | 0 Comments

Mon Sep 30, 2013 5:56pm EDT

(Reuters) – A former Morgan Stanley financial adviser pleaded guilty to an insider trading charge for tipping a childhood friend to Gilead Sciences Inc’s plan in 2011 to buy Pharmasset Inc, three days before the $11.2 billion takeover was announced, court and regulatory records show.

Kevin Dowd, 38, on Monday pleaded guilty to conspiracy to commit securities fraud before U.S. District Judge Anne Thompson in Trenton, New Jersey.

The Boca Raton, Florida resident faces up to five years in prison and a $250,000 fine when he is sentenced on January 15, 2014.

Dowd’s plea was announced by U.S. Attorney Paul Fishman in New Jersey.

Peter Willis, a lawyer for Dowd, did not immediately respond to a request for comment.

According to court papers, Dowd learned about the pending merger from a Pharmasset director, who had been the largest customer of the Aventura, Florida branch where Dowd had worked.

Prosecutors said Dowd on November 18, 2011 told his friend about the merger, prompting the friend to buy $196,000 of Pharmasset stock and pass on the tip to another investor who bought Pharmasset call options, also betting the stock would rise.

Those bets paid off after the merger of the two makers of antiviral drugs was announced on November 21, 2011, valuing Princeton, New Jersey-based Pharmasset at a roughly 89 percent premium over its share price at the time.

Prosecutors said Dowd’s friend netted a $163,621 profit after buying $195,808 of Pharmasset stock, while the other investor netted a $544,706 profit on the stock options.

According to prosecutors, Dowd admitted to receiving a $35,000 cashier’s check in exchange for the initial tip.

Dowd’s friend and the person tipped by that friend are identified only by their initials in court papers.

Brokerage records show that Dowd worked for Morgan Stanley Smith Barney in Aventura at the time of the tip, but is no longer registered with a brokerage.

Morgan Stanley said after Dowd’s arrest in January that it had cooperated with authorities, and that Dowd had been fired in December 2012.

Gilead is based in Foster City, California.

The case is U.S. v. Dowd, U.S. District Court, District of New Jersey, No. 13-cr-00636.

(Reporting by Jonathan Stempel in New York; Editing by Richard Chang)

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