The Philadelphia office of the Securities and Exchange Commission has filed civil charges against two financial advisers and three others, alleging they illegally collected $1.8 million in insider-trading profits on the 2008 sale of Philadelphia Consolidated Holdings Corp. to Tokio Marine Holdings, of Japan, after a Philadelphia Consolidated executive shared confidential news of the merger talks with a broker "through their relationship at Alcoholics Anonymous."
The executive, who was unnamed in the SEC complaint and not accused of wrongdoing, had known Ameriprise Financial Services representative Timothy J. McGee from AA for nine years, before Philadelphia Consolidated entered merger talks with Tokio Marine Holdings.
They also trained for triathlon competitions together. Under founder James Maguire and members of his family who hold top executive posts, Philadelphia Consolidated has sponsored a series of triathlons and other athletic endurance competitions.
The executive and McGee enjoyed a "confidential relationship of trust," when the executive confided details of the sale to McGee on the eve of the sale, SEC attorney Elaine Greenberg told me.
The pair "routinely shared confidences about each other's personal lives and problems impacting professionally," according to the SEC's statement. The executive "confided in McGee that he was under considerable pressure" during deal talks. "McGee expressed interest" and queried him about the timing and valuatiom of the proposed sale. "After learning about the impending merger on July 14, McGee entered an order" for Philadelphia Consolidated shares, and bought more, mostly using borrowed money, on three of the next five trading days.
According to the SEC's Greenberg, McGee also bought shares for accounts he managed for his wife, sister, mother, and grandmother, and shared his inside information on the pending deal with his fellow Ameriprise broker Michael W. Zirinsky, who then tipped his father and two friends to buy the stock in advance of the sale. According to Greenberg, "McGee stole information shared with him in the utmost confidence, and as securities industry professionals he and Zirinsky clearly knew better."
The stock jumped 64 percent the day the deal was announced, enriching the investors who bought on inside information with what the SEC calls "illicit" profits.
McGee and Zirinsky work together for 15 years before the deal at Frazer, McGee, Wayman, Zirinsky & Associates Inc., an Ameriprise financial advisory practice in Plymouth Meeting. Both were unreachable by phone at that office this afternoon; neither returned emails to their Ameriprise addresses.
According to the SEC's statement, "McGee admitted" to the executive "that he had traded on the basis of the confidential information" and made a profit. Greenberg says the SEC investigated trading in the company's shares before the deal announcement, and investigators were soon able to identify McGee as a confidant of the company's executive.
McGee shared deal information with Zirinsky, who bought shares and told his father, Robert, a temporary-employment contractor, who also bought shares. Broker Zirinsky also passed the inside information along to a friend, Paolo Lam, of Hong Kong, who bought shares, and told a business partner, whose wife, Marianna sze wan Ho, also bought the stock based on illegal use of "nonpublic information."
To settle SEC insider trading accusations, Lam agreed to pay $1.2 million in "illicit gains" and penalties, and Ho agreed to pay $140,000, pending court approval.
The SEC seeks similar payments from McGee, his partner Michael Zirinsky, and Zirinsky's father; and from other members of the Zirinsky family as "relief defendants." The SEC says McGee collected $292,000 from insider trading, and the Zirinskis collected $563,000.