The Securities and Exchange Commission on Wednesday announced charges against the former CEO of a Denver, Colo.-based oil-and-gas company at the center of an insider trading scheme involving a Colorado insurance executive that the SEC began prosecuting last month.
According to the SEC’s complaint, the insider trading occurred in advance of Delta Petroleum Corp.’s public announcement that Beverly Hills, Calif.-based private investment firm Tracinda had agreed to purchase a 35 percent stake in the company, which pushed its stock value up by nearly 20 percent.
The SEC initially charged insurance executive Michael Van Gilder for his illegal trading in the case, and is now additionally charging his source: Delta’s then-CEO Roger Parker.
Van Gilder, who is charged with five counts of insider trading, is taking an indefinite leave of absence as an employee of the company and as a member of its board of directors. Van Gilder pleaded not guilty in federal court in Denver in late October after the company said he was stepping down as chief executive for personal reasons. A January trial has been set for Van Gilder.
Van Gilder is accused of trading Delta stock in late 2007 and early 2008 based on nonpublic information, including information from an executive that Delta Petroleum was doing fine despite a published report expressing pessimism.
Don Woods, president of Van Gilder Insurance, has assumed Van Gilder’s management responsibilities.
The SEC’s amended complaint made public on Wednesday alleges that Parker, who lives in Englewood, Colo., illegally tipped his close friend Van Gilder and at least one other friend with confidential information about Tracinda’s impending investment. Despite his duty as CEO to protect nonpublic information, Parker repeatedly communicated with Van Gilder following meetings and other developments as the deal progressed, the complaint states. Parker also illegally tipped information about Delta’s quarterly earnings. The insider trading in this case generated more than $890,000 in illicit profits, according to the complaint.
“Parker was entrusted with highly confidential information, and he betrayed that trust to help line the pockets of his close friends,” Sanjay Wadhwa, deputy chief of the SEC Enforcement Division’s Market Abuse Unit and associate director of the New York regional office, said in a statement. “Company officials who exploit their insider status must realize that they do so at the risk of inviting SEC scrutiny.”
According to the SEC’s amended complaint filed in federal court in Denver, Parker tipped Van Gilder and another friend on several occasions in late November and December 2007 as the Tracinda investment was developing. Based on the inside information, Van Gilder and the other friend loaded up on Delta stock and highly speculative options contracts, and Van Gilder advised his relatives, his broker, and a co-worker to do the same.
The SEC alleges that the Tracinda announcement was not the only nonpublic information that Parker tipped to Van Gilder. In 2007 Van Gilder received an e-mail from a mutual friend of Parker’s that included a news article expressing a negative view of Delta’s future prospects, according to the complaint. After sending an e-mail to his broker indicating he might want to sell the Delta securities that he owned, Van Gilder called Parker three times that evening. Parker conveyed to Van Gilder confidential details about Delta’s third quarter 2007 earnings results that were to be announced later that week, the complaint states. Rather than sell his Delta stock, Van Gilder purchased an additional 1,250 shares and responded to the e-mail from the mutual friend by writing, “I had a dialogue with a friend, of whom you know. Do not sell this stock, rather buy more … Delta will hit their numbers at this Thursday’s announcement,” according to the complaint. When Delta announced its earnings, it reported production and revenue numbers above the company’s previously stated guidance.
The SEC’s amended complaint charges Parker and Van Gilder with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The amended complaint seeks a final judgment ordering them to disgorge their and their tippees’ ill-gotten gains plus prejudgment interest, ordering them to pay financial penalties, and permanently enjoining them from future violations of the above provisions of the federal securities laws. The SEC also seeks to prohibit Parker from acting as an officer or director of a public company.