WASHINGTON D.C. – The Securities and Exchange Commission today announced insider trading charges against a former systems administrator at Vermont-based Green Mountain Coffee Roasters who repeatedly obtained quarterly earnings data and traded in advance of its public release.
The SEC also charged his friend who illegally traded along with him.
In a complaint unsealed July 31 in U.S. District Court for the District of Connecticut, the SEC alleges that Chad McGinnis purchased Green Mountain Coffee securities – typically out-of-the-money options – shortly before earnings announcements were made.
McGinnis also tipped his longtime friend and business associate Sergey Pugach, who illegally traded in his own account and his mother’s trading account.
Together, McGinnis and Pugach garnered $7 million in illegal profits by using inside information to correctly predict the reaction of Green Mountain Coffee’s stock price to 12 of the past 13 quarterly earnings announcements since 2010.
“McGinnis and Pugach exploited confidential company financial data to conduct their insider trading scheme to the detriment of Green Mountain Coffee and its shareholders,” said Donald Hoerl, Director of the SEC’s Denver Regional Office.
“The timing of their trades was consistently and exceptionally successful, but their scheme ultimately was not.”
The SEC’s complaint was filed under seal on July 24, when the court granted the Commission’s motion seeking a temporary restraining order, asset freeze, and other emergency relief. A hearing has been set for August 7.
The SEC alleges that as an information technology employee, McGinnis had access to shared folders on Green Mountain Coffee’s computer server where drafts of pending press releases and earnings announcements were stored.
He also had access to other employees’ e-mail accounts. Both sources provided McGinnis with details about upcoming Green Mountain Coffee earnings announcements before they became public.
According to the SEC’s complaint, McGinnis lives in Morrisville, Vt., and Pugach lives in Hamden, Conn.
Despite living in different states, much of the insider trading in their online brokerage accounts occurred through McGinnis’ home Internet service.
They communicated frequently around earnings announcements, but infrequently otherwise. Around trading times, they exchanged numerous phone calls and text messages not only on their own phones, but also using cell phones belonging to their spouses.
The SEC’s complaint alleges that McGinnis and Pugach violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Pugach’s mother Bella Pugach is named as a relief defendant in the SEC’s complaint for the purpose of recovering ill-gotten gains in her trading account.
The SEC’s investigation, which is continuing, has been conducted by Dan Konosky, Scott Mascianica, and Jay Scoggins in the Denver Regional Office.
The case will be litigated by Dugan Bliss and Greg Kasper.
The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Connecticut, the Federal Bureau of Investigation, and the Options Regulatory Surveillance Agency.
Source: U.S. Securities and Exchange Commission