Thursday, December 3, 2009

Prosecutor Brizzi's Insider Trading Problem

Yesterday, the Indianapolis Star reported on a newly-launched Securities and Exchange Commission investigation into the businesses of Timothy Durham. It contained the following passage:

The SEC's participation indicates that the investigation is gaining force and is taking a broad look at Durham's business dealings.

It also raises new questions about Durham's connections with Indiana political leaders. Among the investors in CLST Holdings is Marion County Prosecutor Carl Brizzi, a close friend of Durham's.

Brizzi has disclosed in several recent financial filings, dating to 2006, that he has owned more than $10,000 worth of stock in CLST, formerly known as CellStar. The company operated for years as one of the nation's largest wholesalers of cell phones before it sold its operations in 2007.

Brizzi declined to say why he bought the stock or how many shares he owns. He also declined to answer a question about whether Durham, a major investor in CellStar, had recommended the stock to him. Brizzi said that he bought stock before Durham was elected a director of the company in 2007.

He said that his stock, which has fallen to less than 10 cents a share since the company's sale of its operations, is today worth less than $10,000 but declined to be more precise. He said he has an unrealized loss on the investment.
Earlier in my career, I obtained my securities license and worked at a company selling securities. One of the things I remember from that experience is how easy it is to get caught up in insider trading. The above passage raises a number of questions that regulators would be asking. For example, what would have prompted Brizzi to have suddenly bought stock in Cellstar, now CLST?

It is quite possible that while Durham was negotiating behind the scenes to purchase Cellstar, he tipped off his friend Carl Brizzi what he was doing. Brizzi then responds to the non-public information by buying stock in Cellstar, banking it will go up. That could well be viewed by the SEC as trading on insider information, a violation of the law for Durham and Brizzi.

Of course, this is the sort of thing that rarely comes to light, so investors generally aren't going to get caught. Ater all, probably 99% of insider trading is never detected. But on the occasions where feds find out it is happening, they feds tend to like to make an example of those who are caught. Martha Stewart, for example, received jail time for lying to federal officials about her possible involvement in insider trading. It probably would be a good idea for Brizzi to pull a Tiger Woods and to stop talking.

2 comments:

Nick said...

Williams Addresses Durham Situation on Afternoons with Amos

http://indydemocrat.blogspot.com/2009/12/williams-addresses-durham-situation-on.html

Leesa said...

The Indianapolis Star stated: Brizzi has disclosed in several recent financial filings, dating to 2006, that he has owned more than $10,000 worth of stock in CLST, formerly known as CellStar. The company operated for years as one of the nation's largest wholesalers of cell phonesRIZZI BOUGHT THE STOCK IN CLST RIGHT before it sold its operations in 2007 TO INDIANAPOLIS-BASED BRIGHTPOINT, RUN BY ROBERT LAIKIN, BROTHER TO DAN LAIKIN, TIM DURHAM'S PARTNER...