State University of New York Institute of Technology
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Man pleads guilty to securities fraud in Disney's Marvel acquisition

As many of you are aware, the company Marvel Entertainment, most known for its iconic comic books, was acquired in 2009 by Walt Disney Co., which is the largest media conglomerate in the world. In doing so, Walt Disney Co. inherited full share of stocks from Marvel. Now, in 2014, a San Francisco man by the name of Toby G. Scammell pleads guilty to a single count of security fraud related to that 2009 acquisition. Prosecutors said he bought call options in Marvel in August 2009 shortly before the deal by Disney was announced, then sold them before Marvel stock jumped 25%. Scammell made about $192,000 in profit, roughly a 3,000% return. Turns out the name SCAMmell proved to be quite fitting. Authorities are accusing him of insider trading and it is said that he learned confidential deatils of the planned transaction from his girlfriend, who had been working in an externship in Disney's corporate strategy department in months leading up to a deal. He then used his brother's trading account to acquire more than 650 call options to purchase Marvel stock for $5,465, but he did not inform his brother of his activities. Once the deal was announced, he transferred $100,000 of the profits from his brother's account to hide the trading activity.

 

This would not be the first time someone used inside information to make profit or to avoid losing thousands or millions of dollars. The infamous Martha Stewart case is a example of such. To avoid losing thousands of dollars in the company ImClone Systems, Stewart sold all her shares, which dropped 16% the following day. When companies merge or get taken over by one another, the stocks tend to rise prior to the acquisition. Scammell understood that, and despite being ethically erroneous, decided to purchase an unrealistic number of shares, which led to a civil action by the U.S. Sercurities and Exchange Commission. The SEC then ordered him to disgorge his trading profits and pay interest and civil penalties totaling $800,985. Scammell, who is schedule to be sentenced in July, faces a maximum of 25 years in prison.

 

By: Michael Hajec


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