United States Attorney
Southern District of New York
Wednesday, January 11, 2012
Hedge Fund Ceo Sentenced in Manhattan Federal Court to One Year and One Day in Prison for Insider Trading Scheme That Netted Nearly $2.5 Million in Profits
NEW YORK – Drew K. Brownstein, aka “Bo Brownstein,” CEO of a Denver-based hedge fund, was sentenced today in Manhattan federal court to one year and one day in prison for securities fraud arising from an insider trading scheme in which he received material, non-public information about a pending acquisition of Mariner Energy Inc. by Apache Corporation, announced Preet Bharara, U.S. Attorney for the Southern District of New York. Brownstein traded on the inside information he received from his friend Drew Clayton Peterson, who got it from his father, Mariner board member H. Clayton Peterson. After the acquisition was publicly announced, Brownstein realized nearly $2.5 million in profits for himself, the hedge fund and others. Brownstein pleaded guilty to one count of securities fraud on Oct. 21, 2011. He was sentenced today by U.S. District Judge Robert P. Patterson, Jr.
U.S. Attorney Bharara said: “Bo Brownstein, along with others, took secret information obtained from the corporate boardroom and used it to make illegal stock trades. The boardroom should be where investors’ interests are protected, not a money trough for tippees of the wealthy and connected. We hope the message is finally getting through – that any financial advantage gained from illegal trading will be fleeting and it will not be worth the cost.”
According to the information and statements made during the guilty plea proceeding:
On March 25, 2010, representatives of Apache began confidential discussions with representatives of Mariner to acquire the company. On April 7, 2010, Mariner’s board of directors convened a conference call to consider Apache’s proposal to buy Mariner for cash and stock totaling $25 per share. At the time, Mariner stock was trading at approximately $17 per share.
On April 12, 2010, Mariner board member Clayton Peterson telephoned his son, Drew Peterson, and told him that Mariner would be acquired by another company within a week. At the time he made this disclosure, he knew that Mariner had not yet publicly announced the acquisition. Drew Peterson immediately telephoned Brownstein and left a voicemail message indicating that Mariner would be acquired. Early in the morning on Tuesday, April 13, 2010, Drew Peterson and Brownstein had a telephone conversation in which Peterson told him that Mariner would soon be acquired and that the source of the information was his father.
That same day, Brownstein used the inside information to purchase Mariner options for the hedge fund as well as Mariner stock and options for other individuals who had previously given him trading authority. After further discussions with Drew Peterson the following day, Brownstein purchased additional Mariner options for both the hedge fund and his personal account.
On April 15, 2010, before the market opened, Apache and Mariner announced that Apache would acquire Mariner. Mariner’s stock, which opened at approximately $18 per share, rose dramatically, and closed at approximately $26 per share. During the trading day, Brownstein caused the hedge fund, his personal account and the accounts of the other individuals to sell all of their Mariner stock and options, reaping illegal profits of nearly $2.5 million.
In addition to the prison term, Judge Patterson sentenced Brownstein to three years of supervised release, with six months home confinement and a special condition of community service. Brownstein was also ordered to pay forfeiture in the amount of $2,445,856, a $7,500 fine and a $100 special assessment fee.
Clayton Peterson and Drew Peterson were charged on Aug. 5, 2011, and pleaded guilty before Judge Patterson the same day. Clayton Peterson was sentenced on Oct. 11, 2011, to two years of probation, three months of home confinement and a $400,000 fine. Drew Peterson is scheduled to be sentenced on April 11, 2012.
U.S. Attorney Bharara praised the investigative work of the FBI. He also thanked the U.S. Securities and Exchange Commission for its assistance.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit: www.stopfraud.gov.
This case is being handled by the U.S. Attorney’s Office of Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Michael A. Levy and Antonia M. Apps are in charge of the prosecution.