O.C. Ex-Broker Pleads Guilty to Insider Trading

A former Newport Beach stockbroker has pleaded guilty in New York federal court to illegal insider trading for using advance information culled from Business Week magazine before it was published, federal authorities said Monday.

John L. Petit, 34, a former stockbroker for Smith Barney, Harris Upham & Co. in Newport Beach, admitted that he illegally earned $66,556 using nonpublic information provided by a salesman working at a Torrance printing plant where the magazine was printed.

He faces a maximum of 10 years in prison and a $500,000 fine.

Petit also agreed to settle civil charges of insider trading filed by the Securities and Exchange Commission. As part of the settlement, he agreed to pay $195,528 in illegal profits, fines and interest. He also was barred from the securities industry for life.

“We think the settlement is a good settlement for the SEC and for the public,” said Jeffrey Zuckerman, an official in the enforcement division of the Securities and Exchange Commission in New York.

Petit is the 11th person in six separate cases to be charged by the SEC for insider trading based on advanced data from Business Week, which is published by McGraw-Hill Inc. He is also the second Orange County stockbroker caught up in the scandal. Both stockbrokers obtained the information from employees of R.R. Donnelley & Sons Co. Inc., the Torrance printer. But the cases are not connected, authorities said.

“As far as we know, they were separate conspiracies,” Zuckerman said.

The investigation is continuing, and Zuckerman said Petit has agreed to cooperate.

According to the charges filed in U.S. District Court in New York, Petit bought stocks from September, 1986, to July, 1988, based on pre-published information from a widely read Business Week advice column “Inside Wall Street.” A favorable mention in the column often resulted in an immediate increase in price.

The inside information, which was used to buy stock in at least 42 companies, was provided to Petit and others by Shayne Walters, a salesman for Donnelley. In exchange, Petit, who now lives in Boca Raton, Fla., gave Walters a discount on brokerage commissions and later hundreds of dollars a week in cash often paid in Smith Barney’s parking lot and a parking lot of a McDonald’s restaurant. Others who were not identified also made payments to Walters for the information.

Walters pleaded guilty in August, 1989, in New York federal court to conspiracy to commit fraud and perjury and is awaiting sentencing on those charges. He also agreed to settle charges filed by the SEC by paying back $31,033 in profits he made, plus an equal amount as a penalty.

Zuckerman would not say whether further charges will be brought, but he said the investigation is continuing. He said that five of the Business Week cases have ended in settlements and that a sixth is still pending in Connecticut and involves five defendants.

In May, a federal jury in Los Angeles ruled that an Anaheim stockbroker and a print shop worker for Donnelley also engaged in inside trading using Business Week.