SEC Permanently Bars Stock Market Analyst for Illegally Profiting from Research Reports
The SEC permanently barred a stock market analyst from trading in penny stocks. The analyst had been charged with trading on nonpublic information ahead of reports that he and his colleagues authored. In addition, the SEC charged two investment bankers with insider trading for trading on material nonpublic information.
According to the Complaint, Jason Napodano repeatedly traded in advance of research reports that he authored in his capacity as head research analyst at Zacks Small Cap Research ("Zacks"). Mr. Napodano allegedly traded on the basis of nonpublic information about certain small-cap stocks, and also on the basis of the timing of the release of the research reports. The Complaint alleges that Mr. Napodano knew that Zacks reports often spurred an increase in the price of issuer stocks, and took advantage of that knowledge to make small trades in violation of Zacks policies, as well as federal securities laws. In addition, the SEC charged Mr. Napodano with intentionally making misrepresentations that he did not hold or trade securities in the issuers covered in his reports.
The SEC also alleged that two investment bankers, Bilal Basrai and Bryce Stirton of LBMZ Securities, Inc. ("LBMZ"), along with Mr. Napodano, repeatedly made illegal trades by utilizing nonpublic information obtained through their employment. According to the SEC, the defendants provided each other with insider tips with the expectation that they would receive benefits in the form of future exchanges of nonpublic information. The SEC also charged Mr. Basrai and Mr. Stirton with trading in advance of publication of a report authored by Mr. Napodano.
Mr. Napodano settled charges with the SEC by agreeing to a permanent bar from trading in penny stocks, as well as disgorgement, interest and penalties totaling over $300,000. Mr. Basrai agreed to disgorgement, interest and penalties totaling nearly $85,000.00, and Mr. Stirton nearly $4,695.00. Mr. Basrai and Mr. Stirton also agreed to bars prohibiting them from trading in penny stocks and from working in the securities industry, with Mr. Stirton having the ability to reapply after five years. LBMZ agreed to a censure and a $240,000.00 penalty for inadequate policies and procedures designed to prevent insider trading amongst employees.
In a parallel action, the U.S. Attorney's Office for the Northern District of Illinois filed criminal charges against Mr. Napodano and Mr. Basrai.