July and August are usually the sleepiest of months in the legal (and securities enforcement) world, and this summer has proven to be no exception. Among the few interesting things going on this month is the criminal insider trading prosecution of former Perella Weinberg Partners managing director, Sean Stewart.
Bloomberg reports that Stewart will go on trial on July 25, 2016 on charges that he tipped his father, Bob Stewart, in advance of five health-care mergers that Sean Stewart learned about through his employment at Perella Weinberg and at JPMorgan Chase & Co. Prosecutors allege that in exchange,
Bob paid $10,000 for a photographer at Sean’s wedding and gave his son an additional $15,000. The father shared tips with a friend, Dick Cunniffe, and the two reaped more than $1 million trading on the leaks, prosecutors said. Of that amount, Bob got about $100,000, his lawyers said.
According to Bloomberg, Sean Stewart's defense is likely to be that although Bob Stewart did get information from Sean, Sean did not know that Bob was trading on it. In other words ... Familial Betrayal of the father-son variety!
A review of the Familial Betrayal archives here at Enforcement Action shows that we have not chronicled any father-son betrayals to date. We do, of course, have almost everything else, including husband-wife (and wife-husband), father-daughter, brother-sister, boyfriend-girlfriend, brother-in-law betraying brother-in-law, divorcee betraying divorcee.
Our Familial Betrayal Advisory System is primarily focused, of course, on the severity of the betrayal rather than the specific familial relationship. Based on the fact that Sean Stewart allegedly joked with his father -- on tape -- that he couldn't believe that Bob didn't trade on a particular tip ("I handed you this on a silver platter and you didn’t invest”), we will initially categorize this case at the green betrayal level of Low ("Someday We'll Laugh About It").
In the over seven years since we rolled out the Familial Betrayal Advisory System, just one case has fallen into the red zone of Severe ("Hell Hath No Fury") betrayal: SEC v. Devlin, which the SEC filed in December 2008. As I summarized here back in 2008,
the SEC sued Matthew Devlin last week for trading on and tipping his clients and friends with confidential, nonpublic information about 13 impending corporate transactions that allegedly led to $4.8 million in illegal profits. According to the SEC, Devlin obtained the information from his wife, a partner in the New York City office of an international public relations firm (Brunswick Group) that was working on the deals. The betrayal allegedly began just four months after the two got married in 2003, and went on for more than four years. Devlin's wife, who just had a baby three weeks ago, reportedly had no idea that her husband was doing this and is "devastated beyond words." The SEC alleged that because the information from his wife was so valuable, Devlin and his friends, including co-defendant Jamil Bouchareb, dubbed Ms. Devlin the "Golden Goose."
There has also only been one case falling into the orange betrayal zone of High ("Restraining Order"): SEC v. Stummer (April 2008) In Stummer, a man arrived at the New York home of his brother-in-law for an annual weekend gathering:
At this time, his brother-in-law served as director of a private equity firm advising a company on the acquisition of Ryan's Restaurant Group. During the weekend visit, Stummer snuck into the brother-in-law's bedroom office and secretly accessed his bedroom office computer. He then correctly guessed his brother-in-law's password, gained access to the private equity firm's computer network, and read several confidential and nonpublic emails relating to the Ryan transaction. The SEC alleges that Stummer used the information he obtained to buy 5,500 shares of Ryan's over the next several days, ultimately realizing a profit of $22,351.17 after the acquisition was announced.