Trading Places

Caption: An expert weighs in a Garrett’s scheme

In the fall of 2009, Matthew came across very specific nonpublic information about Hewlett-Packard acquiring 3Com Corporation.  It turned out that Ken already owned 3Com stock, so he figured that buying more of a stock that he already owned wouldn’t arouse suspicion.  Matthew’s tip seemed ironclad, and he needed the extra money, so he went ahead and bought more stock. With that, Ken made a profit of $200, 000 to share with Matthew.  However, the exchanged didn’t go unnoticed by the SEC, as Ken had hoped. 

Almost a year later, when Ken made $500, 000 on Matthew’s tip that Intel was buying McAfee, the SEC knew something was suspicious about the transactions.  The SEC revisited the records they got from Garrett.  They were quickly able to link Ken to Garrett, and they soon discovered Ken’s friendship with Matthew.  Next, they went back and looked at their records from Matthew’s initial encounter with them a few years prior and were confident they could see a clear pattern of communication among the trio.  Now, the SEC just needed proof, so they waited and watched, knowing the power of greed would compel the group to try again.

In January of 2011, Garrett lost over $4 million from his involvement with Lighthouse Financial Group, a small trading firm that had just filed for bankruptcy.  When he received a call from Ken about a tip relating to the merger of Zoron Corporation and CSR PLC, the sting from the $4 million loss helped him agree to the scheme against his better judgment; he decided to trade on the nonpublic information. Garrett was able to make $2 million on this trade and kept most of it for himself. Only $175, 000 went to Ken and Matthew to share.  This would prove to be the group’s final trade.

On March 8, the FBI visited Ken’s home, and the jig was up.  Ken had no choice but to cooperate and admitted everything, but the FBI wanted more. The FBI wanted Ken to help them incriminate Matthew and his best friend, Garrett, and asked him to record phone conversations with the two men.  A few phone calls later, and the FBI had all the evidence they needed.