Late last week the SEC announced its latest insider trading case, which was filed against two friends and former business school classmates who allegedly used inside information to generate nearly $700,000 in illicit profits. The SEC alleged that Zachary Zwerko, a financial analyst at a major pharmaceutical company, learned about impending acquisitions that his company was about to carry out. Zwerko then allegedly tipped his friend and former classmate, David Post, with confidential details about the acquisitions.
The SEC charges that in exchange for Zwerko providing Post with the information, Post handed Zwerko $7,000 cash at a Halloween party in 2012, and later gave Zwerko a shoebox containing another $50,000 in cash ("twenty-five bank envelopes, each holding $2,000 in fifty dollar and hundred dollar bills") when Zwerko visited Post at his home.
The SEC claims that Zwerko and Post used other methods beyond cash payments to try to avoid detection, as well. The pair allegedly used prepaid “burner” cell phones with which they communicated by exchanging "coded text messages." Zwerko and Post also allegedly developed a dummy email account to exchange information. According to the SEC, "[w]hen one wanted to convey information to the other via the dummy email account, he would draft an email in code and leave it in the draft folder, and the other would read it and then delete the message."
Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, stated that despite the defendants' elaborate efforts to cover their tracks, "in the end, the SEC staff’s investigative expertise helped in bringing yet another audacious insider trading scheme to light.”
The U.S. Attorney’s Office for the Southern District of New York has also filed criminal insider trading cases against Post and Zwerko. Last week, Post pleaded guilty to participating in the scheme, and offered a tearful apology to the court, Bloomberg reports. Zwerko is scheduled to make his initial appearance in court on November 10.
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