Market Professional Charged with Insider Trading by SEC – USAO

by Dorsey & Whitney LLP
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Another market professional apparently chose to make a bad day worse. It is bad enough to be caught up and charged with insider trading in a civil SEC enforcement action. It is worse to have those claims and criminal insider trading and false statement charges added. Yet that appears to have been the choice of long time Wall Street investment banker Frank P. Hixon. SEC v. Hixon, Civil Action No. A14CV0158 (W.D. Tx. Filed Feb. 20, 2014); U.S. v. Hixon, Case No. 1:14-mj-0341 (S.D.N.Y. Filed Feb. 20, 2014).

Frank Hixon has been a New York investment banker since at least 2002. From 2010 to January 2014 he served as Senior Managing Director at Evercore Group, LLC, a subsidiary of Evercore Partners. During that period he traded in the shares of two firm clients and those of his firm based on inside information, according to the civil and criminal court papers. Specifically, Mr. Hixon is alleged to have traded in the shares of:

Westway Group, Inc., 2001. In September 2011 that firm engaged Evercore as its advisor regarding the sale of two business units to its largest shareholder. Mr. Hixon served as Evercore’s lead on the engagement. Between October 21, 2011 and December 15, 2011 there were purchases of 229,000 shares of Westway in the account of Destiny Robinson, also known as Nicole Robinson. The account had not previously traded in this security. The IP addresses demonstrate that the trades were placed in the account from locations that tie to Mr. Hixon. Ms. Robinson is the mother of Mr. Hixon’s five year old daughter. Text messages between the two suggest that the transactions relate in part to financial support for their child.

On December 15, 2011 the firm announced that it had received an offer from its largest shareholder to acquire a business unit. Three days later Westway received an offer for the other business unit. That offer was announced on December 20, 2011. The share price increased 47.3% over the prior day’s close.

Westway continued to solicit and consider various merger offers. By the summer of 2012 “people involved in the negotiations knew that a deal for both business units was believed to be likely,” according to the SEC complaint. On October 30, 2012 the firm began tender offer negotiations with a potential buyer. From September 26, 2012 to November 27, 2012 there were purchase of 67,545 Westway shares in Ms. Robinson’s account. Again the IP logs from the brokerage firm indicate the trades were placed from Mr. Hixon’s locations. On December 20, 2012 Westway publicly announced a merger agreement. The share price rose 10% over the prior day’s close.

As the negotiations continued 140,000 shares were sold at a profit of about $260,000, according to the papers in the criminal case. The day after the 2012 merger announcement the shares held had an imputed profit of about $64,500, according to the SEC complaint.

Titanium Metals Corporation, 2012: In late October 2012 Mr. Hixon, then in London, and others from his firm, met with representatives of Titanium. Discussions were held regarding Titanium’s its negotiations to be acquired by Precisin Castparts. The deal was likely to close by year end. That same day a computer with a London IP address accessed Ms. Robinson’s brokerage account and purchased 20,000 shares of Titanium. Additional shares of the firm were purchased by the account of Frank Hixon, Sr., Mr. Hixon’s father who resides outside Atlanta, Georgia. When the transaction was announced on November 9, 2012, the share price for Titanium increased 43.1% over the prior day close. Three days later the shares in Ms. Robinson’s account were sold, yielding a profit of $184,000. An Austin IP address accessed the account. Mr. Hixon’s calendar states that he was in Austin on the date of the transaction. On November 20, 2012 all the shares in the account of Mr. Hixon’s father were liquidated at a profit of $71,000.

Evercore Partners, 2013: At a partner’s meeting on January 14, 2013 the firm announced internally its financial results for the quarter. On January 28 and 29, 2012 shares of the firm were purchased by Ms. Robinson’s account from a computer using an Evercore IP address and other New York related IP addresses. On January 29 shares of the firm were also purchased by the account of Mr. Hixon’s father. When the financial results were announced on January 30, 2013, the share price increased by 5.3% over the prior day’s close. The shares held by Ms. Robinson’s account were liquidated at a profit of $56,000. The shares held by the account of the account of Mr. Hixon’s father were liquidated at a profit of $21,000.

Subsequently, Evercore received multiple inquiries from FINRA regarding suspicious trading. Those included trading for Frank P. Hixon, Duluth, Georgia and Destiny W. Robinson, Austin, Texas. Mr. Hixon denied knowing either. Mr. Hixon also met with the FBI. He informed the agents that he had never traded in, or accessed, the account of Ms. Robinson.

The Commission’s complaint alleges violations of Exchange Act Sections 10(b) and 14(e). The criminal complaint contains five counts of securities fraud, two counts of securities fraud in connection with a tender offer and one count of making a false statement. Both cases are pending.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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