Risk & Compliance

Analyst Charged in $1.5M Trading Scheme

A former analyst at a New York hedge fund traded on information about Apollo Global Management's buyout of ADT.
Matthew HellerApril 14, 2016

A former analyst at a New York hedge fund has been charged with making $1.5 million in illicit profits by trading on inside information about an impending takeover.

The U.S. Securities and Exchange Commission said John Afriyie, 28, used his access to “highly confidential” information about the buyout of home security firm ADT Corp. by Apollo Global Management to purchase ADT stock options in his mother’s brokerage account.

Apollo, a private equity firm, had approached Afriyie’s employer to discuss potential debt financing for the $7 billion deal, the SEC said. After the deal was announced on Feb. 16, he allegedly sold all of his options for a profit of $1.5 million.

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Afriyie was arrested Wednesday on parallel criminal fraud charges filed by federal prosecutors in New York. “His profits were not the result of trading acumen, diligent research, or blind luck, but rather the alleged spoils of criminal insider trading,” Manhattan U.S. Attorney Preet Bharara said in a news release.

Neither the SEC nor the U.S. attorney identified Afriyie’s employer but, according to Reuters, a LinkedIn profile of Afridyie said he previously worked at MSD Capital, the investment fund of Dell Inc. founder Michael Dell. (CFO could not confirm this information.)

In its civil complaint, the SEC said Afriyie’s responsibilities included analyzing publicly traded companies in connection with the hedge fund’s institutional investment strategy. In January, the complaint alleges, he accessed several highly confidential documents about the proposed ADT buyout on its computer network.

Between Jan. 28 and Feb. 12, 2016, Afriyie allegedly purchased 2,279 ADT short-term option contracts for a total of about $24,000. At the time, ADT stock was trading in a range of $24 to $28 per share and the options had strike prices between $32 and $34.

ADT announced the $42-per-share buyout before the market opened on Feb. 16. The stock jumped about 48% to $39.64 by the close of market that day.

The SEC is seeking to recover the $1.4 million that allegedly remains in the account of Afriyie’s mother. “Insider traders should have learned by now that trying to hide their illegal activity in a relative’s account ultimately won’t work,” Jina L. Choi, director of the SEC’s San Francisco regional office, said.