SEC Charges Tibor Klein and Michael Shechtman With Insider Trading
Continuing its crackdown on violators of insider trading laws, on September 20, 2013 the Securities and Exchange Commission (“SEC”) charged Tibor Klein, president of Klein Financial Services, with illegal insider trading in his own and client accounts based on non-public information in advance of a major merger announcement. Also charged was Klein’s friend Michael Shechtman, a South Florida stockbroker who was tipped to the deal by Klein.
According to the SEC’s complaint, Klein learned of the impending merger between Pfizer, Inc. and King Pharmaceuticals in August 2010 from one of his clients, Robert Schulman, an attorney who works for King. Merely possessing that information was not a violation of any laws or regulations.
It only became one when Klein traded on it for his own and his clients’ benefit. That happened on the day after Klein was told the news. On August 16 he began buying large amounts of stock in King. He also called his high school buddy Shechtman, who began buying for himself and his wife.
The story of how Klein came by his insider information offers a lesson in the dangers of drink. Klein and Schulman, who has not been charged in the case, had been friends for about a decade. Several times a year, Klein visited the Shulmans, went over their investments with them, had dinner, and stayed overnight. As friends do, they shared personal matters, and talked about their work. Both men were familiar with insider trading laws.
Over the weekend of August 13-15, Klein was in the Washington, D.C. area on business. His last stop was an overnight visit with the Schulmans. At dinner, Schulman indulged in several glasses of wine and became literally “tipsy,” telling Klein, “It would be nice to be King for a day.”
Klein took note, and began buying King Pharmaceuticals as soon as he returned to New York.
The public announcement of Pfizer’s tender offer to King was made on October 10. King’s stock rose 39% on heavy volume. Klein and his clients made profits of $328,375.02; Shechtman and his wife’s positions generated $109,040.53. Ironically, Klein hadn’t ventured much in his own account. He made only $8,824.
The SEC’s complaint charges Klein and Shechtman with violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3. The agency seeks disgorgement of ill-gotten gains, financial penalties and permanent injunctions against the pair.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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