U.S. authorities filed civil and criminal charges against the former head of a telecom company, alleging that he traded on inside information — that he’d been fired for cause, and that the company’s earnings were going to be disappointing.
The U.S. Securities and Exchange Commission (SEC) charged Ken Peterman — former chair, CEO and president of Comtech Telecommunications Corp. — for allegedly trading on material non-public information about the company’s forthcoming quarterly earnings, and his own termination.
According to the regulator’s complaint, Peterman allegedly received confidential information about the company’s quarterly earnings on March 4, and eight days after that, he was told that he was being terminated by the company.
“Hours later, Peterman tried to trade ahead of Comtech’s announcement of his termination by placing a market order to sell all 8,241 Comtech shares in his equity compensation management account,” the SEC alleged.
Peterman’s dismissal was announced before the open of trading the next day, March 13, and later that morning, his brokerage firm sold all of his shares. The company announced its disappointing earnings on March 18, which was followed by a 25% drop in the stock price, the SEC said.
Now, the regulator has alleged that Peterman engaged in insider trading.
“By selling his Comtech stock with knowledge of Comtech’s forthcoming material non-public negative earnings results, Peterman breached his duty of trust and confidence to Comtech and its shareholders and avoided losses,” the SEC said, adding that he also tried to sell stock from another account, but that prevented by trading restrictions connected with the scheduled earnings release.
“There is no gray area when it comes to trading on the basis of material non-public information in breach of one’s fiduciary duty. C-suite executives like the defendant, a CEO with decades of experience, know that it is illegal to use their company’s confidential information for their own financial gain,” said Tejal Shah, associate director of the SEC’s New York office, in a release.
The allegations have not been proven.
In its complaint, the SEC is seeking injunctive relief, disgorgement, civil penalties, and a ban on Peterman from serving as an officer or director of a public company.
In a parallel action, the U.S. attorney’s office for the Eastern District of New York also filed criminal charges against Peterman, alleging insider trading, securities fraud and wire fraud.
He is presumed to be innocent of the criminal charges.
Peterman was arrested in San Diego and is scheduled to make an initial appearance in federal court in the Southern District of California. He will be arraigned in the Eastern District of New York at a later date.