SEC Charges Two in Herbalife Insider Trading Probe
WASHINGTON -- U.S. regulators Tuesday charged two men with insider trading after they learned that hedge fund manager Bill Ackman was planning to announce a $1 billion bet against Herbalife (HLF) based on a view the company was merely a "pyramid scheme."
The Securities and Exchange Commission said that Filip Szymik, 28, learned about Ackman's plans to announce his short position from his roommate who worked at Ackman's fund, Pershing Square Management.
He then allegedly tipped off Jordan Peixoto, 30, of Toronto, who worked at the time as an analyst in the New York offices of Deloitte & Touche.
The SEC said that Peixoto then bought Herbalife put options on Dec. 19, 2012 -- a day before Ackman made his announcement and reaped $47,100 in profits.
Later that day, CNBC reported Ackman's short position and his plans to present his negative view on Herbalife. Ackman gave his presentation on Dec. 20, 2012.
Between the CNBC report and Ackman's presentation, the SEC said that Herbalife's shares tumbled by 39 percent by the close of trading on Dec. 24.
Szymik has agreed to settle and pay a $47,100 penalty without admitting or denying the charges.
Peixoto, however, plans to fight the allegations.
The SEC filed the case against him in its home administrative court, but Peixoto's lawyer said that the venue raises constitutional questions about due process and whether it should have been filed in federal court instead.
"This is another instance of the SEC going too far and penalizing somebody for conduct that is not a violation of the law," said Derrelle Janey of Gottlieb & Gordon.
"It is curious to us that the SEC brings this matter as an administrative proceeding understanding full well at the highest levels of the commission that there are potential constitutional issues for a single defendant ... and it is an open question as to whether this should have been brought in federal court."
Paul Ryan, an attorney at Serpe Ryan who represents Szymik, said his client "did not trade a single share of Herbalife or make a penny from his friend's trade" and that he is glad to put the matter behind him.
The SEC didn't name which analyst at Pershing Square allegedly told Szymik about Ackman's upcoming presentation on Herbalife but said the unnamed analyst told his friend that the information was highly confidential and shouldn't be used for trading.
The analyst, who left Pershing Square in September 2013, had worked on the investment team that was assigned to research Herbalife.
Herbalife is a global direct-selling company that sells weight-management products, nutrition supplements, energy drinks and skin-care lotions.
The company has vigorously denied Ackman's allegations that the company is run as a pyramid scheme and previously asked the SEC to investigate whether short-sellers were illegally manipulating the market.