NEW YORK (CNNfn) - Regulators charged two investment bankers Thursday in a complicated two-year insider trading scheme that netted close to three quarters of a million dollars on more than 13 deals.
Authorities alleged that former Salomon Smith Barney Inc. associate Kevin Kirkbride conspired with his ex-boss, Richard Ference, a vice president in the New York office of the Bank of Tokyo-Mitsubishi, to turn quick profits from deals.
They tried to cover their tracks in many ways, such as by dealing in small amounts of stock, the Securities and Exchange Commission alleged. They had other techniques to avoid detection, the authorities said, using pay phones or prepaid calling cards and not keeping records of deals.
Ference, who executed all the trades, paid Kirkbride in cash and told him to spend it only on luxuries, without depositing it, the SEC said.
The SEC and the U.S. Attorney's Office for the Southern District of New York culminated separate but cooperative investigations Thursday, filing civil and criminal charges against both Ference and Kirkbride.
Ference holds more than $1.2 million in stock he bought illegally, the federal prosecutors said.
This marks the third time in less than three years regulators have charged a junior employee at Salomon with illegally profiting from knowledge of deals.
In late 1997, authorities charged former compliance officer Marisa Baridis with getting paid for tipping off a network of brokers and traders to deals at the investment bank. In a separate case in April 1998, the SEC charged Salomon Associate Arjun Sekhri with insider trading. Sekhri is a fugitive, while Baridis pleaded guilty to insider trading.
In the Kirkbride case, Salomon tipped authorities off to trigger the investigation and suspended Kirkbride this March. He no longer works for the company.
Kirkbride and Ference met and became friends at the Bank of Tokyo, where Ference supervised Kirkbride. In March 1997, Kirkbride left to work at Salomon in its large-cap investment bank division.
Between then and March 1999, Kirkbride found out about deals that Salomon was working on, through his own job or by eavesdropping, checking computers or scouting out papers left lying on desks, copiers and printers, federal prosecutors said.
Kirkbride then called Ference, who bought stock in the acquisition targets, the prosecutors charged, hoping to sell it when news of a deal sent the stock up. Ference would keep a third of any profits and pay a third to Kirkbride and keep the rest for taxes, the authorities said.
Not all the deals went through, and when they did, the pair did their utmost to avoid detection, William Baker, associate director of the SEC's enforcement division, said. "Part of their plan was to keep their trading small in order to try and avoid scrutiny," he said.
Here are some of the deals the SEC charge Ference and Kirkbride profited from, and the amounts the commission said they made:
- Tyco International Ltd.'s May 1997 acquisition of Keystone International Inc., $186,000.
- Mentor Graphics Corp.'s tender offer in August 1998 for Quickturn Design Systems Inc., $56,000.
- Hughes Electronics Corp.'s December 1998 acquisition of U.S. Satellite Broadcasting Co., $52,000.
- Federated Department Stores Inc.'s February 1999 deal to buy Fingerhut Cos., $22,000.
- Carolina Power & Light's November 1998 buyout of North Carolina Natural Gas Corp., $18,000.
- Japan Tobacco Inc.'s March 1999 deal to buy RJR Nabisco Holding Corp.'s international tobacco division, $6,700.
Ference faces 15 years in prison on a charge of conspiracy and 14 counts of insider trading, plus fines of up to $14.25 million, the U.S. Attorney's Office said.
Kirkbride, also charged with conspiracy and insider trading, faces similar prison time and fines of up to $1.25 million.
The SEC brought civil charges of fraud against the two, as is typical in insider-trading cases. It is seeking injunctions and the return of any ill-gotten gains, as well as civil penalties.
Neither Kirkbride, 30, who lives in Manhattan, nor Ference, 51 and a Greenwhich, Conn., resident, returned phone calls from CNNfn.
Salomon Smith Barney said it is cooperating with investigators to pursue "serious allegations." It suspended Kirkbride in March and he subsequently left the company, though the company could not immediately determine if he resigned or was fired.
"This former employee [Kirkbride] violated our stringent rules on employee trading," the bank said in a news release. Employees can trade only through Salomon Smith Barney.
The Bank of Tokyo declined comment, saying authorities had not contacted it and it was not aware of an investigation until the charges were filed. "We have not been contacted by any party in regard to this matter," said Fred Leone, a Bank of Tokyo lawyer.
All of the deals in the allegations involved Salomon Smith Barney mergers, so Bank of Tokyo was not involved other than that Ference worked there. The bank declined to say whether he still did.
Both Kirkbride and Ference also traded on their own as well as together, the SEC said.