United States Attorney
Southern District of New York
Monday, March 19, 2012
Former Human Resources Consultant Pleads Guilty in Manhattan to Insider Trading Scheme That Netted More Than $1.1 Million in Illegal Profits
Defendant Exchanged Information About Mergers and Acquisitions of Pharmaceutical Companies for Cash Payments
NEW YORK – Scott Allen, a former consultant at a global human resources consulting firm, pleaded guilty in New York to conspiracy and securities fraud charges in connection with his participation in an insider trading scheme in which he provided material, non-public information about mergers and acquisitions involving the securities of Millennium Pharmaceuticals Inc. and Sepracor Inc., U.S. Attorney for the Southern District of New York Preet Bharara announced today. Allen gave the inside information to co-conspirator John Bennett, a film producer and former investment professional, who traded on that information and gained more than $1.1 million in illegal profits from the scheme. Allen pleaded guilty today before U.S. District Judge Deborah A. Batts.
U.S. Attorney Bharara said, “Scott Allen thought his game of subterfuge and lies would conceal his illegal conduct and save his skin, but he was wrong. His lies and deception were discovered using good, old-fashioned law enforcement techniques and now, like his co-defendant, he will be held to account for his crimes.”
According to documents previously filed in Manhattan federal court:
In his role as a principal of the consulting firm, Allen learned inside information concerning the April 2008 acquisition of Millennium by Takeda Pharmaceutical Company Limited and the September 2009 acquisition of Sepracor by Dainippon Sumitomo Pharma Co. Ltd. Prior to the public announcements of those acquisitions, Allen disclosed the inside information to Bennett, a longtime friend, in exchange for more than $100,000 in cash payments. Bennett then used the inside information to execute securities transactions in Millennium and Sepracor that earned him over $1.1 million in illegal profits.
For example, between February 29, 2008, and April 2, 2008, Bennett purchased approximately 1,090 Millennium call options at a total cost of about $17,000. Following the public announcement of the Millennium acquisition on April 10, 2008, Millennium’s stock price rose approximately 50 percent, and Bennett sold all of his call options for approximately $619,000. Also, between May 27, 2009, and July 22, 2009, Bennett purchased approximately 1,700 Sepracor call options at a total cost of about $227,000. Following the public announcement of the Sepracor acquisition on Sept. 3, 2009, Sepracor’s stock price rose approximately 26 percent, and Bennett sold all 1,100 of his unexpired call options for approximately $682,000.
Allen and Bennett attempted to conceal the insider trading scheme from authorities and to avoid detection. In October 2010, when interviewed at his home by FBI agents, Allen falsely claimed that he had not spoken to Bennett in three or four years. Analysis of Allen ’s and Bennett’s Metrocard usage showed that the two men swiped their Metrocards at the same subway station at about the same time on several occasions. In addition, phone records showed that Allen spoke with Bennett repeatedly through July 2010, contacting him using airport lounge telephones at LaGuardia Airport instead of his cell phone or another phone that was traceable to him.
Allen, 45, of Atlanta, pleaded guilty to seven counts of securities fraud and one count of conspiracy to commit securities fraud. The securities fraud counts each carry a maximum sentence of 20 years in prison and a maximum fine of $5 million. The conspiracy count carries a maximum sentence of five years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense. Allen has also agreed to forfeit the illegal proceeds obtained as a result of the offenses.
Allen is scheduled to be sentenced by Judge Batts on Aug. 20, 2012, at 11:00 a.m.
Bennett, 49, of Norwalk, Conn., pleaded guilty to two counts of securities fraud and one count of conspiracy to commit securities fraud in November 2011. He is scheduled to be sentenced at a later date.
U.S. Attorney Bharara praised the efforts of the FBI. He also thanked the SEC for its assistance in the investigation.
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.
The case is being handled by the U.S. Attorney’s Office for the Southern District of New York’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Marissa Molé Bostick, Michael A. Levy and Richard Tarlowe are in charge of the prosecution.