(HedgeCo.Net) In a complaint filed in U.S. District Court in the Northern District of Illinois, the SEC alleges that Shane P. Fleming, a former vice president of sales at Life Time Fitness, learned of the merger discussions on or before Feb. 23, 2015 and tipped his friend and business partner Bret J. Beshey with the understanding that Beshey would use the information to make a profit and split those profits with Fleming. The SEC alleges that rather than trade in his own name, Beshey tipped his friends Christopher M. Bonvissuto and Peter A. Kourtis with the understanding that both men would kick back a portion of their trading proceeds to Beshey. According to the SEC’s complaint, Kourtis tipped his friends Alexander T. Carlucci, Dimitri A. Kandalepas, Austin C. Mansur, and Eric L. Weller, and asked Carlucci, Mansur, and Weller to give him a portion of any profits they made from trading on the information, which they agreed to do.
The SEC alleges that the six traders purchased a total of approximately 2,000 highly speculative out-of-the-money call options for Life Time Fitness shares and sold those options for profits of approximately $866,209 shortly after a newspaper reported that Life Time Fitness was in advanced merger discussions with two private equity firms. According to the SEC’s complaint, Bonvissuto and Kourtis shared a portion of their profits with Beshey, who gave approximately $10,000 in cash to Fleming. The SEC also alleges that Carlucci and Mansur paid cash kickbacks to Kourtis, and that Weller gave Kourtis at least 10 pounds of marijuana as a kickback.
“Beshey allegedly tried to mask his role in this scheme by recruiting others to trade on inside information rather than trading himself,” said Joseph G. Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit. “Through our ever-evolving investigative tools, we were able to thwart Beshey’s efforts at concealment by uncovering trading by his immediate and downstream tippees and tracing those trades back to him.”
In a parallel action, the U.S. Attorney’s Office for the Northern District of Illinois today announced criminal charges against all eight defendants.
The SEC’s complaint charges Fleming, Beshey, Bonvissuto, Kourtis, Carlucci, Kandalepas, Mansur, and Weller with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC is seeking disgorgement of ill-gotten gains plus interest and penalties as well as permanent injunctions against all eight defendants. The SEC also is seeking an officer-and-director bar against Fleming.