Hedge fund CEO admits $2.5M inside trade scheme
Saturday, October 22, 2011
NEW YORK (AP) — The Denver owner of a hedge fund pleaded guilty Friday to securities fraud, admitting making up to $2.5 million by trading on inside information about a pending acquisition that he got from a friend.
Drew “Bo” Brownstein, 35, entered the plea in U.S. District Court in Manhattan, agreeing to serve up to four years in prison when he is sentenced on Dec. 20.
The hedge fund portfolio manager admitted buying shares of Mariner Energy Inc. in April 2008 after learning from a longtime friend that it was going to be acquired by Apache Corp.
The Securities and Exchange Commission said Brownstein made more than $5 million in illegal profits by trading in his personal accounts, the accounts of relatives and for two of his hedge funds ahead of the oil and gas company’s $3.9 billion takeover by Apache in April 2010. The up to $2.5 million Brownstein admitted to in court was the amount of money related to the criminal charge but an SEC civil case against him cited the higher figure as being the actual profits.
The owner of Big 5 Asset Management LLC choked up as he apologized to family, colleagues, investors and friends.
“I accept full responsibility for what I have done,” he told Judge Robert Patterson. “I can only say these actions run contrary to the principles and values I’ve tried to run my life by.”
He was freed on $500,000 bail.
Sanjay Wadhwa, deputy chief of the Securities and Exchange Commission’s enforcement division’s market abuse unit, said the case was “further evidence of the pervasive nature of insider trading by hedge funds, and a sobering reminder that such conduct is not limited to the immediate vicinity of Wall Street but is taking place in cities around the country.”
U.S. Attorney Preet Bharara called Brownstein “the latest example of a privileged professional who thought he could make a quick and easy profit by trading on his access to confidential information.”
FBI Assistant Director Janice Fedarcyk called it a “textbook example of the kind of conduct for which the law imposes a heavy price.”
Authorities said Brownstein acted on inside information he received from Drew Peterson, another Denver investment adviser, who got tipped about the acquisition from his father, Clayton Peterson, who sat on Mariner’s board. The father and son pleaded guilty in August. The father received two years’ probation while the son is awaiting sentencing in January.