Best source of insider trading tips could be your own spouse
Christie Hefner, former CEO of Playboy Enterprises Inc., said she was shocked as her husband of 15 years, William Marovitz, confessed to her that he was being investigated for suspicious trading in Playboy shares. They were in their apartment atop a 42-story Lincoln Park tower overlooking the glittering Chicago skyline and Lake Michigan on a March evening in 2010.
"He told me he had been contacted by the SEC," Ms. Hefner said later in testimony before the U.S. Securities and Exchange Commission, which didn't accuse her of any wrongdoing.
"And when did you learn your husband owned shares of Playboy?" she was asked.
"In that conversation," she replied.
Ms. Hefner's husband is just one of more than 400 people the SEC and the U.S. Justice Department have accused of insider trading in a crackdown in the last five years, according to data compiled by Bloomberg News. All involved betrayal -- of clients, employers, relatives or friends. The Hefner episode and a handful of cases like it include an especially cruel breach of trust: betrayal of a wife by a husband.
The husband's perfidy produces not only financial loss for the couple as fines have to be paid and illegal profits returned but also a loss of reputation for the wife and sometimes her job. In the worst outcome, the couple break up.
The intimate details of Ms. Hefner's case are recorded in SEC interviews with her and her husband, according to transcripts obtained by Bloomberg News through a Freedom of Information Act request.
The move of insider trading from the boardroom into the bedroom in cases like Ms. Hefner's is one indication that the crime has become so pervasive that even people with significant assets figure it's like bending down to pick up a quarter on the street. A spike in criminal convictions and SEC enforcement actions in the last five years shows the U.S. government does not share that blase attitude toward a crime that cheats other investors.
Nina Devlin's husband brought some friends into the conspiracy of his insider-trading duplicity. She was a partner in the New York City office of Brunswick Group LLC, a London-based communications firm specializing in mergers and acquisitions.
Her husband, Matthew, was a broker for Lehman Brothers. At least 12 times starting in 2004, he shared with a circle of friends information he had overheard from her about corporate takeovers, according to an SEC complaint. Among this group of insider traders, Mr. Devlin's wife became known as "the golden goose."
All told, the ring netted $4.8 million in illicit gains, according to the SEC. As for Mr. Devlin, his profit was negligible: $23,000 in gifts and kickbacks from his buddies.
FBI agents confronted Mr. Devlin in August 2008. He confessed to his wife, who was pregnant. Mr. Devlin agreed to cooperate with the government. Four months later, Ms. Devlin, 38, gave birth to a son, born prematurely, according to court documents. At Mr. Devlin's sentencing earlier this year, Ms. Devlin pleaded on his behalf.
"I was shocked and devastated when I learned of my husband's actions in the summer of 2008," Ms. Devlin wrote in a letter to U.S. District Judge William H. Pauley III. "I suffered severe repercussions from them nonetheless, including the loss of a job I loved and severe damage to the reputation and career I had worked for more than a decade to build."
Judge Pauley granted Mr. Devlin probation, but not before summing up what he had done: "He betrayed the trust of Lehman Brothers, his responsibility to his profession and he betrayed the trust of his spouse, all of it completely tragic and senseless for a sum of money, to his benefit, that was a rounding error in his compensation."
Lorene Hipp was an executive secretary at Seattle insurer Safeco Corp. She followed orders when management told her the company was about to be sold and made her sign a confidentiality agreement. In April 2008, her husband, Math J. Hipp Jr., asked why she was suddenly working overtime and weekends.
"His wife dodged his questions, stating she could not talk about it or was particularly busy at work," according to the SEC. "She also told him she was concerned Safeco employees would lose their jobs, but she would not tell him why."
Mr. Hipp, an engineer, bought 127 call options on Safeco stock that month, betting the shares would jump. They did when a sale to Boston-based Liberty Mutual Group Inc. was announced, and he made $118,245 in illicit profit, the SEC said. Safeco fired Ms. Hipp, said her lawyer, Lawrence Cock, even though the SEC ultimately determined she had never breached her agreement to remain quiet.
Mr. Hipp settled SEC insider trading charges in May 2009 without admitting wrongdoing. He agreed to pay twice the sum he made on the transaction, plus interest, for a total of $239,771.
The Hefner-Marovitz case stands out among these betrayals of wives by husbands, mixing love and treachery with wealth and power.
From 1988 through early 2009, Ms. Hefner, 60, ran Chicago-based Playboy Enterprises, the company founded in 1953 by her father, Hugh Hefner, who took it private in 2011. She expanded the magazine publishing company into cable programming and digital media, and attempted to re-enter the gambling industry. "Billy" Marovitz, 68, whom she began dating in the early 1990s and married in 1995, seemed the ideal soul mate.
A former state senator from a prominent family of Chicago Democrats, he and Ms. Hefner shared interests in progressive causes. After leaving public service in 1993, he became a real estate developer in Chicago and a limited partner in investment groups behind local restaurants.
On several occasions after they were married, her husband made casual remarks about buying Playboy stock. In her SEC testimony, Ms. Hefner said she warned Mr. Marovitz against doing that.
The couple kept separate brokerage accounts throughout their marriage, Ms. Hefner told the SEC.
Mr. Marovitz's first betrayal, as alleged by regulators, was a small one.
It came on April 15, 2004, around the time the company was planning to issue new stock to pay down debt, a transaction that might boost the company's share price. Mr. Marovitz purchased 5,000 shares.
When the offering was announced on April 21, Playboy stock jumped 8 percent, resulting in a gain of $2,806 for Mr. Marovitz, the SEC claimed when it sued him.
A few months later, on Aug. 5, he sold 25,000 shares of Playboy stock, all of his holdings, which he had accumulated without his wife's knowledge and without consulting Playboy's general counsel. The day after the sale, Playboy reported a second-quarter loss, and the company's shares dropped 18 percent. Mr. Marovitz thus avoided $64,983 in losses, the SEC said.
Four years later, he was at it again, according to the SEC, selling 14,700 shares of Playboy stock the day before the announcement of a quarterly loss resulted in a 9 percent drop in the company's shares. That transaction helped him avoid a loss of $11,507.
On Nov. 10, 2009, he bought 9,000 shares of Playboy stock, two days before Bloomberg News reported that New York- based Iconix Brand Group Inc., which manages brands, was in talks to acquire the company. The report caused Playboy stock to rise 42 percent that day.
A month later, according to the SEC, he ordered his broker to sell all of his 35,200 shares of Playboy stock just hours after his wife learned that Iconix had ended talks with Playboy. The SEC calculated that he gained, or avoided losses, of nearly $22,000 through his Iconix-related trading.
A few months after the Iconix trade, an SEC attorney visited Mr. Marovitz at his Chicago office to inform him that his Playboy stock trading, conducted through Mesirow Financial Inc., was being investigated.
According to Mr. Marovitz's testimony before the SEC, he visited his broker shortly after that meeting to talk about "getting documents," among other things.
First Published December 17, 2012 12:00 am