Clayton Peterson, a member of the board of directors and chairman of the audit committee of Mariner Energy, Inc., and his son Drew Peterson, who worked as an investment adviser in Denver, Colorado, pleaded guilty to criminal insider trading charges and were named as defendants in an SEC suit. Clayton Peterson learned at board meetings that his firm would be acquired by Apache Corporation in a deal that was announced on April 15, 2010. After first learning about the deal he repeatedly tipped his son, instructing him to trade through an account belonging to his sister. The son traded and tipped a hedge fund manager who also traded. Following the announcement of the deal the share price of Mariner Energy rose about 42%. The hedge fund manager liquidated his positions, yielding a profit of $5 million. Within days Drew Peterson, and the various accounts for which he traded, liquidated their positions yielding a profit of $150,000. Clayton Peterson and his son Drew each pleaded guilty to one count of conspiracy to commit securities fraud and one count of securities fraud. Sentencing is scheduled for January 12, 2012. The SEC brought a civil injunctive action against Clayton Peterson and his son.
1. What is a civil injunctive action? What does the term disgorgement mean?
2. What ethical responsibilities does a board of director have regarding the company for which he/she serves?
3. Explain the tip that was acted upon in the insider trading. Do you think Clayton and Drew would have been caught if the son had not tipped off a hedge fund manager?
Staff. (2011). Father and Son Plead Guilty to Insider Trading Charges, Lexis/Nexis: Corporate & Securities Law Community, August 8 (Retrievable online at http://www.lexisnexis.com/community/corpsec/blogs/corporateandsecuritieslawblog/archive/2011/08/08/father-and-son-plead-guilty-to-insider-trading-charges.aspx)