MANHATTAN (CN) - The director of market intelligence at Lippert/Heilshorn & Associates earned more than $538,000 by inside trading, federal prosecutors said Tuesday.
Michael Lucarelli was arrested Tuesday and charged with 13 counts of securities fraud, according to a statement from the U.S. Attorney's Office. U.S. Magistrate Judge James Cott presided over Lucarelli's presentment in court after his arrest.
As a consulting director for Lippert/Heilshorn, Lucarelli allegedly had access to working drafts of press releases that the firm prepared for clients prior to their issuance to the investing public.
Prosecutors said those draft press releases contained material, nonpublic information about business events and announcements, and that Lucarelli used and traded upon such information for the last 12 months.
"In violation of LHA's policies and in breach of his duties to LHA and its clients, on multiple occasions, Lucarelli took positions in the stock of LHA clients shortly before the announcement by these companies of material information through press releases prepared by LHA," prosecutors said in a statement. "Shortly following the issuance of the press releases drafted by LHA, Lucarelli exited the positions in these securities that he had acquired prior to the issuance, thereby profiting on the movement in the stock price. "
LHA's written code of conduct nevertheless strictly prohibits its employees from trading in any security issued by an LHA client, according to the complaint.
Prosecutors said Lucarelli illegally profited of at least four different brokerage accounts, and that he did not reveal his LHA affiliation when opening new brokerage accounts through which to conduct his illegal trades
"On two occasions, Lucarelli opened new brokerage accounts soon after his ability to trade in other accounts had been suspended by the respective brokerage firms," the government's statement says.
Investigators secretly searched Lucarelli's office at LHA last month and allegedly uncovered a locked briefcase containing a draft press release for LHA client, TREX Co.
"That press release was marked 'DRAFT' and contained TREX's second fiscal quarter 2014 financial results," according to the statement from prosecutors. "The following day, after the FBI completed the search, Lucarelli started purchasing shares of TREX. Between July 25, 2014 and August 1, 2014, Lucarelli took a net position of 37,400 shares of TREX. Then, on August 4, 2014, shortly before the market opened, TREX issued a press release announcing its second fiscal quarter 2014 financial results. Among other things, TREX announced that sales and earnings before taxes had increased 23 percent and 62 percent, respectively, in comparison with the comparable period in 2013. TREX also issued revenue guidance for the third fiscal quarter of 2014, which was a 27 percent increase over the comparable period in 2013. Within two hours of the announcement, LUCARELLI sold 35,058 of the 37,400 TREX shares he previously purchased. Those sales yielded a profit of almost $90,000."
Prosecutors said Lucarelli's 13 instances of insider trading earned him "at least $538,215.32 in illicit proceeds."
"Furthermore, the FBI has discovered numerous additional trades that Lucarelli conducted in LHA client securities and that exhibit a similar pattern of fraud," according to their statement. "The FBI's investigation is ongoing."
Each count against Lucarelli 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.