Insider Trading at Nasdaq Involves Ex-managing Director

Jack Humphrey, Regulatory journalist
May 27, 2011 /

While working in a specialized department within the NASDAQ Stock Market’s Corporate Client Group (CCG), a former managing director at the stock exchange profited thousands of dollars in an insider trading.

The Securities and Exchange Commission has charged today Donald Johnson of Ashburn, Va., a former managing director of The NASDAQ Stock Market for illegally trading on confidential information, in addition to a parallel criminal action announced by the U.S. Department of Justice.

This is the first insider trading suit that the SEC filed this month after charging Juan Jose Fernandez Garcia, former analyst at Banco Santander SA, on April 25 for trading in advance of the public announcement of a multi-billion dollar acquisition.

Johnson, who was working in NASDAQ’s Market Intelligence Desk that provides issuers with general market updates, allegedly traded in advance non-public information as corporate leadership changes, earnings reports and forecasts, and regulatory approvals of new pharmaceutical products.

“Instead of protecting NASDAQ client confidences, Johnson secretly traded on client information for personal gain, even using his NASDAQ office computer to make the trades,” said the SEC’s Division of Enforcement head Robert Khuzami, who described the insider trading as a case “of the fox guarding the henhouse.”

From January 2000 to October 2006, Johnson worked in CCG, after which he transferred to the Market Intelligence Desk, a specialized department that provides overviews of their company’s sector, and commentary regarding the factors influencing day-to-day trading activity in their stocks.

Johnson worked in various positions for the NASD and NASDAQ for 20 years until his retirement from NASDAQ in September 2009.

The insider trading, which involved nine announcements of NASDAQ-listed companies, occurred from August 2006 to July 2009 according to the SEC’s complaint filed before the U.S. District Court for the Southern District of New York.

Johnson took advantage of both favorable and unfavorable information that was entrusted to him in confidence by NASDAQ and its listed company clients, shorting stocks on several occasions and establishing long positions in other instances.

The SEC claimed that Johnson frequently interacted with senior executives of NASDAQ-listed issuers, including CEOs, CFOs, and investor relations officers at his assigned companies.

“Johnson assured at least one corporate official that she could share material nonpublic information with him because he was obligated as a NASDAQ employee to hold such information in confidence, and then he illegally traded on it,” said Antonia Chion, Associate Director of the SEC’s Division of Enforcement.

According to the complaint, the corporate executives shared the nonpublic information with Johnson because he assured them that it would be kept confidential and that he could not use the information for his personal benefit.

For example, after speaking by phone with executives at United Therapeutics Corp. (UTHR) on October 30, 2007, Johnson became aware of the successful completion of a trial for drug Viveta and traded in advance of its stock that earned him approximately $175,000.

Johnson purchased 10,000 shares of UTHR stock in his wife’s brokerage account on October 31 despite the confidentiality of the nature of the Viveta trial results discussed with him.

Before UTHR could announce the success of the trial on November 1 that same year, Johnson already sold all of the stock that he had purchased and placed sell orders online from his office computer at NASDAQ.

In three years time, the insider trading yielded more than $755,000 for him.

Johnson was charged for violating Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, while his wife Dalila Lopez was named as a relief defendant to recover illicit profits in her possession.

The SEC seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest and a monetary penalty.

 

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