Federal regulators claim that three men used insider information to profit illegally from Arch Coal’s acquisition of International Coal Group.
Frank Tamayo schemed with two other men to generate more than $5.6 million in profits from 13 mergers and acquisitions, the U.S. Securities and Exchange Commission says in a lawsuit. The court filing alleges the men traded on nonpublic information taken from law firm Simpson Thacher & Bartlett.
Only Tamayo, of Brooklyn, New York, is named as a defendant. He pleaded guilty last week to federal securities fraud charges stemming from the same transactions. The other two men, Steven Metro and Vladimir Eydelman, are named in the complaint and described as participants in the scheme.
Federal authorities have previously alleged that Metro stole insider information from the law offices of Simpson Thacher, and Eydelman worked as a stockbroker. Federal prosecutors in New Jersey say Tamayo was working as a mortgage broker between 2009 and 2013 when he received the insider information.
One of the transactions described in the complaint involves Arch Coal’s acquisition of Scott Depot, West Virginia-based International Coal Group in spring 2011. It says the men received information from a source inside Simpson Thacher after ICG sent a draft merger agreement to Arch Coal and the law firm. Nine days later, on April 29, 2011, Tamayo purchased 40,000 shares of ICG stock. After Arch Coal announced that it would purchase ICG on May 2, Tamayo began selling shares. He made $135,052 in illegal profits from the coal transaction, according to the complaint. In total, the scheme generated $231,276 in illegal profits from the ICG acquisition, it says.
As described in the complaint, a Simpson Thacher employee would pass information to Tamayo, who would then pass information to a stockbroker. The complaint says insider information was shared between Tamayo and the stockbroker at Grand Central station. Tamayo would write stock symbols of companies being acquired on Post-It notes or napkins. “Tamayo then chewed up, and sometimes ate, the post-it note or napkin to destroy evidence of the tip,” the complaint reads.
The lawsuit was filed Friday in New Jersey, the same day Tamayo pleaded guilty to federal securities fraud charges. The securities fraud charges were brought by U.S. Attorney Paul J. Fishman in New Jersey.
The SEC asks that Tamayo be ordered to surrender the illicit trading profits, pay civil penalties and be permanently barred from violating securities law.
A phone call to Tamayo’s residence was not immediately returned Tuesday, nor were emails and a phone call to Tamayo’s lawyers immediately returned.
In an email to the Wall Street Journal Monday, one of Tamayo’s lawyers wrote: “We cannot comment except to say that on Friday Mr. Tamayo took the first step in the process of accepting full responsibility for his actions.”