Insider Trading—It’s All in the Family

Hidden Money

The family that trades on inside information together, stays together!

The SEC filed a settled insider trading complaint against Matthew Brunstrum and his mother, Susan Brunstrum, in a federal district court in Illinois. According to the SEC complaint, Matthew Brunstrum learned that his employer, Stericycle, was about to announce disappointing first quarter earnings. The complaint does not specify how Brunstrum learned this information, but did state that he worked in close proximity to Stericycle’s management and accounting teams.

The Commission alleged that Brunstrum engaged in improper trading based on this information, and avoided losses and earned profits in the amount of $159,904. He also allegedly tipped his mother, Susan Brunstrum. According to the SEC, his mother fared even better, walking away with a total of $170,252 in avoided losses and earned profits.

The Brunstrum case is a rather routine insider trading case, with the tipper and tippee selling the shares of the company they owned before the negative earnings announcement, and then buying and disposing of short-term out-of-the-money puts in a way that neither had traded before. What makes this case interesting, and blogworthy, is the evidentiary trail described by the SEC. The Brunstrums broke the second rule of insider trading—don’t talk about insider trading (the first rule of insider trading is, obviously, DON’T DO IT!).

The Telltale Texts

Stericycle emailed a notice to all employees about the trading blackouts in advance of each quarterly close. After learning that the company would miss its first quarter numbers, Matthew Brunstrum engaged in the following text exchange with a friend after describing his plan:

  • Friend: That doesn’t seem legal.
  • Brunstrum: How so? I’m just an analyst. As long as I don’t do it during our Earnings Blackout dates its fine.
  • Friend: I mean if you profited big money off of puts on your company, the SEC would be knocking on your door quickly.
  • Brunstrum: What I’m saying is the SEC doesn’t look at analysts, it’s only VPs and above.

Knock, knock.

Brunstrum and his mother gave the SEC more fodder in a mutually congratulatory text exchange after the transactions. The SEC claimed that Susan Brunstrum sent a text to Matthew saying, "Will call you this afternoon. Made money on calls and puts.” She then added, “you did too!” Matthew Brunstrum allegedly replied, “yes, I will call u on my way home today.”

The Enforcement Division seems to be sending a message by bringing the case, and by including the language of the texts in the complaint. That message appears to be a simple one. When Matthew Brunstrum texted “[w]hat I’m saying is the SEC doesn’t look at analysts, it’s only VPs and above,” he was very, very wrong.

The Brunstrums consented, without admitting or denying any wrongdoing, to the entry of an injunction prohibiting future fraud violations, and also agreed to disgorge their ill-gotten gains, along with prejudgment interest. The district court will set any amounts due as civil penalties, and must approve the settlement before it becomes final.