Jury Finds Fraud in Business Week Insider Case : Wall Street: The Securities and Exchange Commission is seeking restitution and penalties of nearly $200,000 from a stockbroker and a printer.
A federal jury in Los Angeles on Wednesday took just over an hour to decide that an Anaheim stockbroker and a Torrance printer engaged in securities fraud when they traded stocks based on information culled from advance copies of Business Week magazine.
In the civil trial--the first stemming from a series of nationwide insider trading cases involving the magazine’s “Inside Wall Street” column--the eight-person jury found that stockbroker Brian J. Callahan conspired with printer William N. Jackson to make profits by trading stocks based on information not yet available to the public.
Following the verdict, U.S. District Judge Stephen V. Wilson told attorneys that the men’s actions were particularly egregious and said he had decided to take the extraordinary action of freezing their assets.
“They are dissemblers and worse,” Wilson said.
The Securities and Exchange Commission says Callahan, 30, and several of his brokerage clients made $19,684 in illegal profits. Jackson, 34, and two of his brokers scored $19,506 in ill-gotten gains.
The SEC is seeking restitution and penalties of close to $200,000. Wilson will decide in the next few weeks how much money the two men will have to pay the SEC. The verdict--and much of the testimony in the four-day trial--has tarnished Callahan’s once brilliant career as a stockbroker and financial adviser. He started trading securities at the age of 11 and by his mid-20s was writing a newspaper column on stocks for the Orange County Register titled “Hot Trades.”
He was working as a stockbroker for Prudential-Bache Securities in Anaheim when Jackson and he began buying securities mentioned in Business Week. Jackson was a quality-control analyst at R. R. Donnelley & Sons Co., a commercial printing firm in Torrance where Business Week is published.
Jackson testified that he would pick up copies of Business Week on Wednesday nights or early Thursday mornings and then phone Callahan with the magazine’s recommendations some time before the stock market opened at 6:30 a.m. Pacific time. He said he did this regularly between September, 1987, and July, 1988.
Business Week’s managing editor testified that the magazine wasn’t released to the public until at least 2 p.m. Pacific time on Thursdays.
The Callahan-Jackson trial was one of several unrelated cases around the country that involve people allegedly profiting from early editions of Business Week. Several people have pleaded guilty to criminal charges but none have come to trial.
Unlike those individuals, Callahan and Jackson have not been charged with any criminal wrongdoing, but sources indicate that they are still under investigation by federal authorities.
SEC attorneys in closing arguments portrayed Callahan and Jackson as two young men who thought they could put one over on Donnelley, Prudential-Bache and federal investigators.
“He (Jackson) saw an opportunity to take advantage of his early access to the magazine and he took it,” said Christopher Petito, senior special counsel with the SEC.
But defense attorneys said neither man knew that what he was doing was illegal, and each claimed that the case was brought to trial to shield Business Week’s publisher as well as Donnelley from responsibility.
“This case is about little guys being sacrificed to protect big guys from embarrassment,” said Joseph Connolly, Callahan’s attorney, during closing arguments.
Prudential-Bache didn’t fire Callahan until August, 1988, two months after it had discovered what the two men were doing. The SEC claims that Callahan continued to trade on inside information even after his employer became aware of his activity.
Callahan claimed during the course of the trial that he didn’t know where Jackson worked until June, 1988, and thought the stock recommendations were coming from a computer program belonging to one of Jackson’s brothers.
Connolly lashed out at Prudential-Bache, saying the company had made Callahan its scapegoat.
“There is a fraudulent scheme here. To get the egg off the face of Prudential-Bache by dumping on Brian Callahan,” Connolly said. “They threw Brian Callahan overboard and then they came here to help the SEC drown him.”
For his part, Jackson’s attorney--Jack Samet--argued that the news contained in Business Week’s Wall Street column isn’t what’s considered inside information. He read a few columns to jurors, which talked about a few of the 49 stocks Jackson eventually purchased.
Samet told jurors the information contained in the column was either already public or nothing more than unfounded rumors. “That’s no different than a friend saying last night that the Lakers would win today,” Samet said.
The attorney said Jackson is now a self-employed graphics and printing designer in Long Beach. Callahan works for an unidentified investment banking firm in Orange County.
“He wants no part of being a stockbroker anymore,” Connolly said.
