A Cautionary Tale: SEC Charges Public Relations Executive With Insider Trading in Client’s Stock
A number of years ago when I worked in the investor relations practice of a public relations firm, one of my colleagues in another practice remarked, “If I had known yesterday, I would have bought the stock.” She was referring to the forthcoming announcement by a client of an acquisition, which, when announced, sent the price of the target upward.
Of course, my colleague didn’t know the ramifications of her statement. I gave her a quick tutorial on the SEC’s disclosure rules and, if caught in violation of them, her career and reputation would be ruined. I also asked her if she liked the color orange as jail time for such offenses is another possibility.
I was reminded of that story when I learned that the SEC recently charged the CEO of a Los Angeles-based public relations firm with insider trading on nonpublic information she learned from a client that was about to acquire a bank in a deal assisted by the Federal Deposit Insurance Corporation (FDIC).
The SEC alleges that Renee White Fraser and her firm Fraser Communications were contacted by Pasadena-based East West Bancorp (EWBC) for marketing and public relations support during its acquisition of San Francisco-based United Commercial Bank. The very next day after agreeing to take on EWBC as a client, Fraser bought 10,000 shares of EWBC stock. She sold all of her shares after EWBC’s stock price jumped 55 percent after the public announcement of the acquisition.
Fraser agreed to settle the SEC’s charges by paying $91,530.36, which is more than double what she gained in illegal profits from her alleged insider trading.
“Fraser’s client entrusted her with highly sensitive nonpublic information, and she tried to turn that into a quick side profit,” said Michele W. Layne, Director of the SEC’s Los Angeles Regional Office. “Consultants in public relations or any career field cannot exploit their client relationships for an illegal payday in the stock market.”
According to the SEC’s complaint filed in U.S. District Court for the Central District of California, EWBC contacted Fraser Communications on Oct. 14, 2009, and shared material, nonpublic information about its upcoming FDIC-assisted transaction for the confidential corporate purpose of allowing Fraser and her employees to prepare marketing and public relations materials ahead of that acquisition. EWBC formally engaged Fraser’s firm on October 15 to assist EWBC with public relations work.
The SEC alleges that Fraser purchased 10,000 EWBC shares on October 16 after learning the previous day about the impending EWBC-United Commercial Bank transaction. EWBC announced the acquisition of United Commercial Bank’s banking operations on November 6. Fraser proceeded to sell 7,500 of her EWBC shares on November 10, the second trading day after the announcement. She sold the remaining 2,500 shares on June 24, 2011, for total combined profits of $43,868.
In settling the SEC’s charges without admitting or denying the allegations, Fraser agreed to pay $43,868 in disgorgement, $3,794.36 in prejudgment interest, and a $43,868 penalty. She consented to a permanent injunction from further violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Fraser also agreed to a permanent bar prohibiting her from serving as an officer or director of a public company.
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