Therapist Pleads Guilty to Insider Lockheed Deal : Securities: Information from a session with a company executive was parlayed into a market windfall.
In an astonishing breach of confidentiality, a Santa Monica psychotherapist pleaded guilty Wednesday in federal court to one count of insider trading for parlaying information gleaned during therapy with a senior Lockheed Corp. executive into a stock market windfall.
Mervyn Cooper, who has practiced psychotherapy for 35 years, also agreed to settle civil charges brought by the Securities and Exchange Commission for $110,000.
The Lockheed executive, whose identity was not disclosed, was undergoing marriage counseling with Cooper when he confided last year that Lockheed was negotiating a major financial deal.
The disclosure came just days before the firm announced its $10-billion merger with Martin Marietta in August 1994, according to the SEC and a criminal information filed in federal court in Los Angeles.
Cooper just hours later took the information to a friend, Kenneth Rottenberg, along with $2,000 for the illegal trades, according to criminal court records. Rottenberg then opened a trading account and purchased call options and shares in Lockheed, according to the filings.
When Lockheed announced its merger with Martin on Aug. 29, the value of the shares and the options soared, earning the duo combined profits of $177,235.60. Rottenberg has yet to settle with the SEC and has not been charged with any criminal offense.
Cooper was charged with obtaining illegal profits of $53,000, leaving the bulk of the illegal profits yet to be recovered.
Assistant U.S. Atty. David Seide said the case is particularly unusual because of the size of the profits and unusual breech of confidentiality.
Under federal law, Cooper had a “fiduciary relationship” with the Lockheed executive and he misappropriated the information that was given to him in confidence, Seide said.
Only one other case involving a psychotherapist is known to exist. New York psychiatrist Robert Willis pleaded guilty to trading in 1986 in BankAmerica Corp. shares, based on information he obtained from a patient. But the size of his illegal profits were far less than in the Lockheed case.
The Cooper case is the second insider case to grow out of the Lockheed merger. Lockheed Martin attorney Stephen Wagner was sued by the SEC earlier this year for illegally buying 50 Lockheed call options before the merger. Wagner, who still works for Lockheed, agreed to pay $86,590 to settle the case.
Seide said that Cooper and Rottenberg bought the most risky and short-term options available on the Lockheed stock, making the deals highly suspicious to regulators. He declined to say how the case was broken, saying it remains under investigation.
A Lockheed Martin spokesman declined to say whether the executive was disciplined in any way for letting the information slip out, adding that “it is not our policy to comment on personnel issues.” But the individual is still with the firm, he said.
Aerospace industry experts say that it is not uncommon for executives to undergo psychotherapy, because of the stress associated with the defense downsizing. Although aerospace executives are highly paid, they also face uncommon job pressures owing to the competition that has forced contractors to fight for their survival and executives fight for their jobs.
The Lockheed executive was apparently one of 30 senior executives who knew about the impending merger. The executive and spouse were jointly undergoing counseling by Cooper.
Seide said that Cooper faces a maximum sentence of 10 years in prison and a $1-million fine at his sentencing on the criminal charge, scheduled for March 11. Under a federal sentencing guidelines, he faces a minimum sentence of 6 months to a year, Seide said.
Seide said that Cooper destroyed patient records and provided false information to the SEC once the investigation began--factors that might weigh against him in sentencing.
But Cooper’s attorney, John Libby, said he will ask the court to sentence Cooper only to community service, calling the illegal trading an “isolated incident in a lifetime of service to others.” Cooper, 57, is married and has two grown daughters, Libby said.
Rottenberg’s attorney declined comment.
