Recently, a Manhattan federal jury took a little over two hours to find former Standard & Poor’s credit analyst, Sebastian Pinto-Thomaz, guilty of illegally tipping two friends about the $9.3 billion June 2017 merger of paint makers Sherwin-Williams and Valspar Corp.
Background of the Case
Last week, a Manhattan federal jury found Mr. Pinto-Thomaz guilty of tipping Jeremy Millul, a jeweler in Manhattan’s Diamond District, and another friend in March 2016 about the pending merger of Sherwin-Williams and Valspar Corp. after confidentially learning about it at work. The other friend ran an upscale hair salon in Manhattan’s Flatiron District.
As a credit analyst for S&P, Pinto-Thomaz had received material nonpublic information about Sherwin-Williams’ proposed acquisition of Valspar in early March of 2016 – prior to the public announcement of the acquisition. Pinto-Thomaz was tasked with assessing how the proposed acquisition could affect Sherwin-Williams’ credit rating. After receiving this confidential information, Pinto-Tomaz provided tips about the pending acquisition to his friends.
Between March 10 through March 18th 2016, both of Pinto-Tomaz’s friends purchased Valspar stock and out-of-the-money call options. On March 21, 2016, the first trading day after the public announcement of the acquisition, the price of Valspar stock increased approximately 23% over the prior day’s close.
U.S. Attorney Geoffrey Berman said: “Sebastian Pinto-Thomaz stole confidential information from his employer and passed it to two men he had known for years – and he did it for his own personal benefit. While the defendant attempted to blame his mother for this conduct at trial, as a unanimous jury found, it was Pinto-Thomaz who committed insider trading.”
Sebastian Pinto-Thomaz was convicted of two counts of conspiracy to commit securities fraud and two counts of securities fraud. Sentencing is scheduled to take place on Monday, April 29, 2019 at 4:00 pm before presiding judge Jed S. Rakoff.
Our Take
On first blush, the Pinto-Thomaz case is not terribly interesting as it is a run-of-the-mill insider trading case. However, one interesting precedent established during the case will have a lasting impact how prosecutors communicate with jurors in the future about insider trading.
In a pretrial motion, lawyers representing Pinto-Thomaz argued that language characterizing that the stock market should be a “level playing field,” doesn’t properly describe how the stock market works.
They argued that U.S. Supreme Court precedent, including Dirks v. U.S. Securities and Exchange Commission, provides that the stock market is not supposed to be fundamentally fair, or a level playing field, as investors routinely seek out ways to gain an advantage over their competitors to increase profits. Judge Jed S. Rakoff agreed, saying, “Anyone who thinks that the stock market is a level playing field obviously has no contact with reality.”
Ultimately, this means that in future insider trading cases prosecutors can argue that the actions undertaken by the accused should be defined to be insider trading, and are therefore illegal. However, they can no longer argue that the accused had an “unfair advantage”.