Friday, May 27, 2011

What a Sc#mb#g: Former NASDAQ Managing Director, Donald L. Johnson, pleads guilty to SEC insider trading charges

Dr. David Krause, Applied Investment Management program director at Marquette University, said, “Unfortunately, these headlines are far too common. After reading the SEC’s charges and the accompanying stories about this case, I hope he gets full justice. The integrity of the financial markets took a severe blow in 2008 and now this? I understand why so many Americans are distrustful of those in high places within the securities industry. This guy is a sc#mb#g and I hope that anyone else thinking about doing something like this realizes that the SEC is watching and will prosecute perpetrators like Johnson to the maximum.”
  
The Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging Donald L. Johnson, a former managing director of The NASDAQ Stock Market, with multiple instances of insider trading. The SEC’s statement can be found at this link:   http://tinyurl.com/3cawbms.

In a story from the News & Observer (http://tinyurl.com/3pyydrg) it was reported that a former NASDAQ manager pleaded guilty Thursday to stock fraud after admitting that he made more than $600,000 on insider trading. Donald L. Johnson, 56, was a managing director on NASDAQ's market intelligence desk until he retired in 2009. Johnson admitted to eight trades between 2006 and 2009 in which he profited roughly $641,000 from information that hadn't been publicly disclosed, prosecutor Justin Goodyear said. In some cases, he bought company shares to capitalize on favorable news; in other cases he used short sales to profit on bad news that sent shares tumbling. The trades were done in his wife's name, Goodyear said.

Prosecutors estimate that Johnson actually earned more than $750,000 from insider trading. In one 2007 trade, Johnson made $175,000 by purchasing shares of United Therapeutics before successful trial results were announced for one of its drugs - Viveta, now called Tyvaso. In 2009, Johnson admitted using insider information to purchase additional shares of United Therapeutics ahead of federal approval for Tyvaso. Johnson profited by nearly $111,000 on that transaction.

Johnson also earned $34,000 in 2006 by trading ahead of the announcement of Digene Corp.'s president by short-selling the company's shares. Other companies in which Johnson used insider information to profit include Central Garden and Pet Co., Idexx Laboratories Inc. and Pharmaceutical Product Development Inc.

In a conference call with reporters, Assistant Attorney General Lanny Breuer said the market intelligence desk Johnson worked for provided client relations for companies traded on the NASDAQ. Companies that might have news that would move financial markets or affect shares' trading levels could consult with the market intelligence desk to help understand how markets would react to the news.

"Mr. Johnson was in fact a fox in a henhouse," Breuer said. "Mr. Johnson's actions were a brazen abuse of power. He cheated the system to line his own pockets."

"Don Johnson used sensitive, confidential information as an executive at NASDAQ to pad his retirement by more than $600,000," said Neil MacBride, U.S. attorney for the Eastern District of Virginia. "He thought he could get away with it by using his wife's account and making relatively small trades just a few times a year. But he learned what every other trader on Wall Street must now realize: We're watching."

Johnson faces up to 20 years in prison when he is sentenced Aug. 12. Also Thursday, the Securities and Exchange Commission filed related civil charges against Johnson in federal court in New York.


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