Insider Trading Scars Walt Disney-Marvel Deal
The Securities and Exchange Commission has charged a California man with insider trading for a 3000 percent profit based on confidential information that he learned from his girlfriend prior to Walt Disney Company’s acquisition of Marvel Entertainment.
The SEC’s complaint claimed that Toby Scammell, who worked at an investment fund at the time, purchased highly speculative Marvel call options beginning in mid-August 2009. He secretly used money in his brother’s accounts over which he had been given control when his brother was deployed to serve in Iraq a few years earlier.
The punitive actions taken by the SEC is part of its longstanding campaign against insider trading, the latest of which implicated former professional baseball player Doug DeCinces and three others in an insider trading that took place ahead of a company buyout. The defendants allegedly profited more than $1.7 million when Abbott Park, Ill.-based Abbott Laboratories Inc. announced its plan to buy Advanced Medical Optics Inc. through a tender offer.
Scammell even searched the Internet for the terms “insider trading,” “material, non-public information,” and “Rule 10b-5″ just before he purchased many of the Marvel securities.
Scammell’s girlfriend worked on the Marvel acquisition as an extern in Disney’s corporate strategy department. According to the SEC, she possessed confidential details about the pricing and timing of the deal.
The SEC charged Scammell for illegally trading on this non-public information, breaching his duty of trust and confidence to his girlfriend. Marvel’s stock price jumped more than 25 percent after the August 31, 2009, public announcement, and Scammell then sold all of his Marvel options, without revealing his trades or profits to his brother or his girlfriend.
“Scammell exploited his romantic relationship for a financial windfall. His misuse of confidential information gave him an unfair and illegal edge over other traders in the markets,” said Rosalind Tyson, Director of the SEC’s Los Angeles Regional Office.
According to the SEC’s complaint, Scammell and his girlfriend had multiple discussions about whether she should delay her business school applications so that she could write about the high-profile acquisition she was working on at Disney as part of her business school applications. She received detailed information about the anticipated acquisition including the $50 per share acquisition price. Scammell had access and the password to his girlfriend’s Blackberry on occasion.
The SEC claimed that Scammell obtained the identity of the acquisition target from his girlfriend by overhearing one or more of her Marvel-related conversations, seeing electronic or paper documents in her possession related to the Marvel acquisition, or through his own work-related conversations with her.
According to the SEC’s complaint, Scammell had never traded before in Marvel securities, and had only one previous experience trading call options that was unsuccessful.
In the weeks leading up to the Disney-Marvel announcement, Scammell made several purchases totaling more than $5,400 in Marvel call options with remarkable strike prices of $50 and $45 even though Marvel had never traded above $41.74.
Most of the Marvel options that Scammell purchased were set to expire on September 19, just weeks after the announcement.
The SEC said Scammell’s trades were so unusual that his purchase of options represented 100 percent of the market in many instances. After the public announcement that Marvel would be acquired by Disney, Scammell sold his Marvel options for a profit of more than $192,000 — a 3000 percent return in less than a month.
Scammell allegedly had limited personal funds at the time, so he secretly used his older brother’s money to buy the majority of the Marvel call options. Scammell had obtained trading authority over his brother’s account when he was deployed to serve in Iraq with the U.S. Army.
Scammell never told his brother that he had invested his money in Marvel or that his brother’s account had increased by more than $100,000 in less than one month as a result of the Marvel trades.
The SEC seeks a permanent injunction, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.