The insider-trading scheme is linked to IBM. Photo: Stan Honda/AFP
An Australian financial analyst could face up to 25 years in a US jail for allegedly pocketing $7600 in an insider-trading scheme.
Trent Martin, 33, from NSW, was arrested in Hong Kong on December 22 on US charges relating to an alleged insider-trading scheme linked to computer firm IBM's $US1.2 billion ($1.16 billion) purchase of SPSS, a statistical analysis and market research software company.
He faces charges of securities fraud and conspiracy to commit securities fraud, the US Attorney's Office in New York said in a statement on Boxing Day, and could spend up to five years in prison on the conspiracy charge and up to 20 years behind bars on the securities fraud charge if convicted.
"Martin is a licensed professional who knowingly disregarded insider-trading laws to enrich himself, and then fled the United States when he learned of our investigation," the Philadelphia regional office director of the US Securities and Exchange Commission (SEC), Daniel M. Hawke, said in a statement about the allegations.
"Martin could run but he could not hide, as the long arm of the SEC will extend to those who flee the United States hoping to avoid the consequences of their unlawful conduct."
A spokesman for the Department of Foreign Affairs and Trade (DFAT) said the Australian government was aware of Mr Martin's arrest.
"Officials from the Australian Consulate-General in Hong Kong will visit him today to offer consular assistance," the spokesman said.
It is understood Mr Martin is on "administrative leave" from his employer, Nomura International. He joined Nomura in September 2011, and previously worked at the Royal Bank of Scotland in New York and Sydney from 2009 to 2011.
Mr Martin was alleged to have learnt confidential information from an unidentified New Zealand lawyer working on the IBM deal, on May 31, 2009.
The pair were identified in US Securities and Exchange Commission (SEC) documents as being ''very close friends''.
"The information was shared in confidence. Based on their long-standing history of sharing confidences, among other things, [the lawyer] expected that Martin would not share the information or use it to trade," the US Attorney's Office said.
The SEC added: ''As two young professionals living in a foreign country far from home, they quickly became very close friends ... The [lawyer] considered [Mr Martin] to be his closest friend in New York.''
But the SEC said although Mr Martin's unnamed friend only sought "moral support, reassurance, and advice" about the IBM-SPSS deal, Mr Martin "attempted to purchase SPSS common stock on the very first business day after learning the non-public information from his friend".
Mr Martin allegedly bought the SPSS stock in June 2009. He also shared the information with his room-mate in Manhattan, stockbroker Thomas Conradt, 34, who in turn told his friend and co-worker David Weishaus, 32, the SEC alleged.
Mr Conradt allegedly bought SPSS common stock while Mr Weishaus allegedly bought call option contracts in SPSS in June 2009. Both of them told two other colleagues, who allegedly also bought SPSS call option contracts.
In an instant message exchange documented in the SEC complaint, Mr Conradt and Mr Weishaus discussed what they had allegedly done:
Conradt: we gotta keep this in the family
Weishaus: dude, no way, i don't want to go to jail, f--- that
Conradt: jesus christ
Weishaus: martha stewart spent 5 months in the slammer
Ahead of the anticipated IBM deal, the pair allegedly had another instant message conversation on July 23, 2009, according to the SEC:
Conradt: i got no options, wtf, I'm setting this deal up for everyone
Conradt: makin everyone rich
Weishaus: [a second friend] is gonna put in 50k, sept options
Conradt: holy f---
Weishaus: i tlak.ed [sic] to him last night
Conradt: god trent told me not to tell anyone
Weishaus: ahhaha, so awesome
Conradt: big mistake
Weishaus: eh, we'll get rich
Conradt: in any case, i'm just glad to contribute actually, you guys have done a lot for mf:, esp you and [the second friend], i didn't think for a second i wouldn't tell you
Weishaus: this is gonna be sweet, we just need this thing to pop next week, or im out
Conradt: it's gonna blow up
Weishaus: yeah, we're just time strapped, anywya [sic], lets not type
On the same day, Mr Martin allegedly told his lawyer friend that he had bought SPSS common stock and call options based on the information he had told him.
The IBM deal was announced on July 28, 2009 and SPSS common stock rose by 41 per cent in one day. All five alleged participants sold their SPSS positions and gained a total of $US1.2 million in profits. Mr Martin gained $US7900, Mr Conradt reaped a profit of $US2538 and Mr Wishaus took home $US129,290.
The other two brokers, who were not identified, yielded profits of $US629,954 and $US254,360, the US Attorney's Office alleged.
In late 2010, Mr Martin allegedly told the lawyer he had profited almost $US8000 from the information, as the SEC started its investigation into the suspected insider trading.
"Martin further stated to [the lawyer] that he was returning to Australia in light of the US Securities and Exchange Commission investigation, and that he knew that insider trading can result in jail sentences, referring to the criminal prosecution of Martha Stewart," the US Attorney's Office said.
Mr Martin appeared in a Hong Kong court on December 24 and was remanded in custody, the city's justice department said in an e-mail to Bloomberg. The department added that the case was adjourned to January 4 so he could obtain legal advice.
Mr Conradt and Mr Weishaus were arrested on November 29. They pleaded not guilty on December 7 and will appear in a New York court on January 18, the US Attorney's Office said.