The Securities and Exchange Commission has accused two registered reps from Ameriprise Financial Services and three other advisors of engaging in insider trading using information one of the reps obtained from a longtime friend in an Alcoholics Anonymous program in Pennsylvania.
“It’s very troubling conduct,” said Elaine C. Greenberg, associate director of the SEC’s Philadelphia Regional Office, who oversaw the investigation, “especially by a registered rep who clearly was aware of insider trading laws.”
The SEC says that Timothy J. McGee “stole” the information from his AA friend and shared it with his Ameriprise colleague Michael W. Zirinsky.
Both reps then purchased shares in an insurance concern, Philadelphia Consolidated Holding Company, right before it was acquired by the Japanese company, Tokio Marine Holdings in 2008.
The shares jumped 64% on the day of the merger announcement, generating a $298,128 profit for McGee and total profits of $562,673 for Zirinsky and four of his family members.
Zirinsky’s father Robert Zirinsky is also named in the suit.
After allegedly being tipped off by Michael Zirinsky, two of his friends who live in Hong Kong, Paolo Lam and Marianna sze wan Ho, also bought shares that produced profits of $837,975 and $110,580 for each respectively, according to the SEC. Without admitting any wrongdoing, the Hong Kong residents paid settlements, including fines, to the SEC in the amount of $1.2 million for Lam and $140,000 for Ho.
After conducting its own internal investigation, Ameriprise Financial suspended McGee and Zirinsky.
“We fully cooperated with the SEC on this matter,” said Ameriprise spokesman Paul Johnson. “We have very strict rules related to the use of material non-public information.”
In 1999, McGee became acquainted with a fellow member of AA who was a senior executive at Philadelphia Consolidated Holding Company, according to the complaint, filed in the U.S. District Court in the Eastern District of Pennsylvania in Philadelphia.
The executive, referred to as “the Insider” in the document, was trying to get sober and “believed McGee could help him because McGee had a long successful history of sobriety.” The two became close due to similar family situations and careers in business, and eventually, they even started training for triathlons together, the SEC maintains.
“By 2008, the Insider and McGee had known each other for almost a decade, and they had forged a close relationship in which the men routinely shared confidences about each others’ personal lives and problems impacting them professionally,” according to the complaint. “McGee assured the Insider on many occasions that he would keep the information they discussed confidential.”
McGee is also alleged to have urged his AA friend to invest his money with him “… because he knew the Insider’s personal history, had kept the Insider’s confidences in the past, and would continue to do so, and could better serve the Insider’s investment and financial needs because of this relationship.”
During the spring and summer as the merger neared, the SEC says, the executive began attending one to two AA meetings a day. He allegedly confided to McGee that the pressure of the approaching deal had prompted him to drink again.
McGee pressed the executive for details of the deal and, in response, the executive said it would be worth three times the book value of his employer’s company, according to the complaint.
As a result, over the next two weeks, McGee went on to purchase 10,750 shares of the insurance company at a cost of $359,248, the SEC claims. Later McGee is described as having admitted to his friend what he had done.
“McGee stole information shared with him in the utmost confidence, and as securities industry professionals he and Zirinsky clearly knew better,” said Greenberg, who indicated that the way this insider information allegedly was obtained, via an AA meeting, may be unique in the commission’s history. “As this case demonstrates, we will follow each link in a tipping chain all the way to Hong Kong if necessary.”
The SEC is pursuing penalties against McGee, Michael Zirinsky and Robert Zirinsky. It is seeking financial relief from four other Zirinsky family members. Repeated attempts were made to contact McGee, Michael Zirinsky and Robert Zirinsky. None of them, nor attorneys for McGee and Michael Zirinsky, responded to requests for comment. An attorney for Lam and Ho did not immediately respond to a message left outside of normal Hong Kong business hours.
Reuters contributed to this article.