According to authorities, Timothy McGee, 48 years of age, originally of Philadelphia, was charged in an indictment with one count of securities fraud and one count of perjury in an alleged case of insider trading. The information was released in an announcement by U.S. Attorney Zane David Memeger.
The indictment alleges that between July 14, 2008 and July 22, 2008, McGee purchased shares of a publicly traded company based on non-public information he received from a fellow member of Alcoholics Anonymous immediately following a meeting the two had attended together.
The indictment alleges that an executive with Philadelphia Consolidated Holding Corporation (PHLY), an insurance company based in Bala Cynwyd, Pennsylvania whose shares were publicly traded on the NASDAQ, told McGee that the company was in discussions with a potential acquirer. McGee owed the PHLY executive fiduciary and other duties of trust and confidence stemming from their decade-long relationship forged over the bond of their mutual membership in Alcoholics Anonymous. McGee allegedly understood the information was confidential and that he could not seek to use it for his personal gain but violated his position of trust and confidence by trading on the basis of the confidential information the executive shared with him.
Federal authorities said that the week following the executive’s disclosure, McGee purchased 10,250 shares of PHLY stock for less than $39 per share. The day after McGee made his final purchase of PHLY stock, PHLY announced that it would be acquired by Tokio Marine, a Japanese insurer, in a cash deal by which PHLY shareholders would receive $61.50 per share of PHLY stock. Just days following the public announcement of the merger, McGee sold 4,750 shares of PHLY stock for $58.50 per share; upon the merger’s consummation on December 1, 2008, McGee received $61.50 per share for his remaining PHLY shares. In all, McGee netted personal profits of approximately $292,000 from his unlawful PHLY trades.
The indictment further alleges that in addition to trading on the basis of the material non-public information, McGee also tipped a friend to buy PHLY stock, resulting in that friend immediately purchasing shares of PHLY stock in his and his family members’ brokerage accounts.
On September 16, 2009, McGee testified under oath before the Securities and Exchange Commission (SEC) in connection with the SEC’s investigation into insider trading in the shares of PHLY. McGee, it is alleged, willfully lied during that sworn testimony, claiming that when he purchased the PHLY shares in July 2008 he was unaware of any information regarding PHLY’s impending merger or any information at all that might affect PHLY’s stock price.
If convicted, the defendant faces a maximum sentence of 25 years’ imprisonment, a three-year term of supervised release, a $5.25 million fine, and a $200 special assessment.
The SEC has filed a related civil action against McGee and other defendants, which is currently pending before the Honorable R. Barclay Surrick in the Eastern District of Pennsylvania.