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From Securities Regulation Daily, August 26, 2014

Investor relations firm director charged with trading on confidential client information

By Amanda Maine, J.D.

The SEC and the Department of Justice announced that a director at an investor relations firm has been charged with insider trading. The government alleged that the employee was in possession of material nonpublic information about the firm’s clients—such as earnings information and pending mergers—and that he traded on the information in violation of the federal securities laws (SEC v. Lucarelli, August 26, 2014).

Allegations. Michael Lucarelli was hired in August 2012 by Lippert/Heilshorn and Associates (LHA), an investor relations firm. Lucarelli’s title at LHA was Director of Market Intelligence and his principal role there was to develop new client relationships. As an employee of LHA, Lucarelli had access, including electronic access, to material nonpublic information provided to the firm by its clients in advance of the public issuances of press releases LHA prepared for those clients. The SEC alleged that Lucarelli used this information on several occasions to trade in advance of over twenty corporate event announcements between August 2013 and August 2014.

Among the LHA clients in whose securities Lucarelli traded was Trex Company, Inc. The SEC alleged that on several occasions, Lucarelli engaged in transactions of Trex stock—buying stock, selling it short, or purchasing call options—prior to the announcement of Trex’s earnings. Lucarelli also purchased shares of LHA client Fab Universal Corp. on two occasions, then sold the shares following the public announcement of revenue growth, netting him over $45,000 in illicit profits. In addition, the SEC alleged that he reaped over $201,000 by shorting shares of and purchasing put option contracts on stocks of LHA client Aceto Corporation in advance of the company’s announcement that third quarter results were lower than expected.

Lucarelli also learned that PhotoMedex planned to acquire LCA-Vision Inc., both LHA clients. On the day the boards of the two companies met to approve the merger agreement, Lucarelli purchased nearly 45,000 shares of LCA-Vision stock. The following day, the merger was announced and LCA-Vision stock rose 23 percent. Lucarelli sold his entire position in LCA-Vision in the following two days, profiting more than $57,000.

According to the SEC, many of Lucarelli’s transactions were placed from a computer bearing an LHA IP address. The SEC alleged that Lucarelli’s trades in these stocks and the stocks of other LHA clients resulted in Lucarelli reaping illicit profits of over $950,000.

Civil and criminal charges. The SEC’s complaint charges Lucarelli with violating the antifraud provisions of the federal securities laws. The U.S. Attorney’s office also announced criminal charges against Lucarelli. The criminal indictment charges Lucarelli with 13 counts of securities fraud. Each count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million, or twice the gross gain or loss from the offense. The investigation and charges are the result of the efforts of President Obama’s Financial Fraud Enforcement Task Force.

The case is No. 14 MAG 1878.

MainStory: TopStory FraudManipulation DirectorsOfficers Enforcement MergersAcquisitions PublicCompanyReportingDisclosure NewYorkNews

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