The SEC yesterday charged a former Dow Chemical employee, his high school friend, and a former Raymond James broker yesterday with insider trading based trades made in July 2008 before Dow announced its acquisition of Rohm & Haas, a materials technology company.
The alleged source of the information? Stacey A. Murrell, who was the administrative assistant of Dow’s chief financial officer and the the live-in girlfriend of Mack D. Murrell, who then was Dow’s Vice President of Information Systems.
The SEC’s complaint, filed in the U.S. District Court for the Eastern District of Michigan, says that shares of Rohm stock jumped 64% in the day following Dow’s announcement of the acquisition and that Murrell, his friend David Teekell and Teekell’s Raymond James broker, Charles Adams, made a combined $640,000 while Raymond James, the brokerage firm, made $373,497. According to the complaint Stacey Murrell, who is a “related person” and not charged, “had access on a real-time basis to information regarding Dow’s impending acquisition of Rohm” during the July 2008 discussions and negotiations over the Rohm deal. The deal was announced July 10.
Murrell and Stacey had been living together since 2006 and purchased a home together in Saginaw, Michigan in July 2008. The SEC complaint says the two discussed their former spouses and other children, and so had what the SEC describes as “a relationship of trust and confidence” with each other. While that sounds like a strangely legalistic way to describe a close, romantic relationship (Mack and Stacey married in May 2009), it is crucial to the insider trading charge.
Insider trading happens, according to the SEC, when someone buys or sells a security, like a stock or option “in breach of a fiduciary duty or other relationship of trust and confidence.” In the case of Murrell, he did not acquire the information in his role as Dow employee, according to the complaint, but instead from his girlfriend, who had knowledge of the acquisition discussions because she was the then-CFO’s administrative assistant.
The SEC’s complaint describes the Murrells’s relationship at some length and evidence that they had what looks like a good, normal relationship is actually a key claim in the SEC’s case. The complaint notes the sensitive matters they discussed with each other (because, duh, they were living together) and says that “They had a history of keeping secrets from other people,” which is totally normal for people in long-term romantic relationships. Furthermore, “Stacey trusted Murrrell” and “When working from home, she did not take precautions to hide her work from him.”
Because the Murrells had a relationship that included keeping secrets about sensitive, personal topics, Mack Murrell had a relationship he could violate by tipping off his friend with information his girlfriend gave him. As the complaint puts it: “At all relevant times, Murrell and Stacey had a relationship of trust and confidence. They had a history, pattern, and practice of sharing confidences.”
According to the SEC, Murrell violated that “relationship of trust and confidence” when he tipped off Teekel, his friend from going up in Houston, on the morning of July 3 after Stacey told Murrell the previous day that Dow’s CEO “had pulled everyone into a meeting.” Ten minutes after the special board meeting to discuss the Rohm acquisition ended, Stacey called Mack’s cell phone—once again, totally normal behavior for two people living together that turns into evidence of criminality on Murrell’s part.
Teekell, who lives in Tomball, Texas, and Murrell talked several times that morning, according to the complaint, and Teekell contacted Adams. The following Monday, Teekell and Adams began purchasing Rohm stock and call options, contracts that allow the buyer to buy stock at a certain price at some point in the future. They are often used to speculate that a stock’s price will go up, but are generally cheaper than normal shares.
The SEC said in a release that “Teekell and Adams invested so heavily in two series of Rohm call options on July 9, 2008 that their investments accounted for over 86% and 64% of the total options volume for these series on that day.” Dow announced the Rohm acquisition on July 10 and its stock price jumped 64%, from $44.83 to $73.62
Teekell agreed to settle the charges and disgorge his gains of $534,526, pay a $534,526 penalty, and another $105,346 subject to court approval. Adams left Raymond James in December 2011 after 15 years at the firm. Mack Murrell resigned from Dow in March of this year and Stacey Murrell retired from Dow in August 2012.