Preet Bharara, the United States Attorney for the Southern District of New York, announced that DREW K. BROWNSTEIN, a/k/a “Bo Brownstein,” CEO of a Denver-based hedge fund (the “Hedge Fund”), was sentenced today in Manhattan federal court to one year and one day in prison for securities fraud arising from an insider trading scheme in which he received material, non-public information (“Inside Information”) about a pending acquisition of Mariner Energy, Inc. (“Mariner”) by Apache Corporation (“Apache”). BROWNSTEIN traded on the Inside Information he received from his friend Drew Clayton Peterson (“Drew Peterson”), who got it from his father, Mariner board member H. Clayton Peterson (“Clayton Peterson”). After the acquisition was publicly announced, BROWNSTEIN realized nearly $2.5 million in profits for himself, the Hedge Fund, and others. BROWNSTEIN pled guilty to one count of securities fraud on October 21, 2011. He was sentenced today by U.S. District Judge Robert P. Patterson, Jr.
Manhattan U.S. Attorney Preet Bharara said: “Bo Brownstein, along with others, took secret information obtained from the corporate boardroom and used it to make illegal stock trades. The boardroom should be where investors’ interests are protected, not a money trough for tippees of the wealthy and connected. We hope the message is finally getting through—that any financial advantage gained from illegal trading will be fleeting and it will not be worth the cost.”
According to the Information and statements made during the guilty plea proceeding:
On March 25, 2010, representatives of Apache began confidential discussions with representatives of Mariner to acquire the company. On April 7, 2010, Mariner’s board of directors convened a conference call to consider Apache’s proposal to buy Mariner for cash and stock totaling $25 per share. At the time, Mariner stock was trading at approximately $17 per share.
On Monday, April 12, 2010, Mariner board member Clayton Peterson telephoned his son, Drew Peterson, and told him that Mariner would be acquired by another company within a week. At the time he made this disclosure, he knew that Mariner had not yet publicly announced the acquisition. Drew Peterson immediately telephoned BROWNSTEIN and left a voice-mail message indicating that Mariner would be acquired. Early in the morning on Tuesday, April 13, 2010, Drew Peterson and BROWNSTEIN had a telephone conversation in which Peterson told him that Mariner would soon be acquired and that the source of the information was his father.
That same day, BROWNSTEIN used the Inside Information to purchase Mariner options for the Hedge Fund as well as Mariner stock and options for other individuals who had previously given him trading authority. After further discussions with Drew Peterson the following day, BROWNSTEIN purchased additional Mariner options for both the Hedge Fund and his personal account.
On April 15, 2010, before the market opened, Apache and Mariner announced that Apache would acquire Mariner. Mariner’s stock, which opened at approximately $18 per share, rose dramatically, and closed at approximately $26 per share. During the trading day, BROWNSTEIN caused the Hedge Fund, his personal account, and the accounts of the other individuals to sell all of their Mariner stock and options, reaping illegal profits of nearly $2.5 million.
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