The government’s sweeping crackdown on insider trading has focused on hedge fund trading floors and corporate boardrooms. On Tuesday, it reached into Alcoholics Anonymous.
Federal regulators charged money manager with trading on confidential information about the acquisition of a Philadelphia-based insurance company passed to him by an executive at the insurer. The two men attended A.A. meetings together, and the insurance executive had confided in the money manager that the stress of the deal was driving him to drink, according to the complaint.
The Securities and Exchange Commission filed a civil lawsuit against Timothy J. McGee, a former investment adviser at Ameriprise Financial Services, accusing him of illegally buying the stock of the Philadelphia Consolidated Holding Corporation. The insurance executive, identified as “the Insider” in the S.E.C.’s complaint, was not charged.
Four people were charged alongside Mr. McGee: his business partner at Ameriprise, Michael W. Zirinsky; and three others supposedly tipped off about the deal by Mr. Zirinsky.
The five defendants collectively reaped more than $1.8 million in illegal profits after Philadelphia Consolidated was acquired by the Japanese insurer Tokio Marine Holdings, the S.E.C. said. Philadelphia Consolidated’s stock jumped 64 percent on the news of Tokio Marine’s acquisition.
John C. Grugan, a lawyer for Mr. McGee, did not return a call for comment. Richard A. Levan, a lawyer for Mr. Zirinsky, declined to comment.
The crux of the case revolved around the relationship between Mr. McGee and the insurance executive. The two forged a close friendship that began in 1999 at A.A. meetings, bonding over their successful business careers and an interest in triathlons, the S.E.C. said.
In its lawsuit, the S.E.C. noted the “Twelfth Tradition” of A.A., which is the organization’s policy of anonymity that encourages participants to speak freely to one another before, during and after each meeting.
“The confidentiality of information shared between members of the A.A. program is underscored at each meeting, where participants are reminded that ‘what is discussed here stays here,’ ” said the S.E.C. complaint. “Confidentiality is integral to the operation of A.A.”
In 2008, the insurance executive confided in Mr. McGee about the sale of his company to Tokio Marine, the S.E.C. said. He said that he was under significant pressure to ensure a successful sale of his company to Tokio Marine, and that the strain was leading him to start drinking again.
The S.E.C. said that the confidential tip led Mr. McGee to buy shares in Philadelphia Consolidated and then leak news of the pending deal to Mr. Zirinsky, his Ameriprise colleague. Mr. Zirinsky then tipped off others and bought stock in the brokerage accounts of numerous relatives, including his 89-year-old grandmother’s account, who is said to have earned about $200,000 in illegal profits. The grandmother was not charged in the case, but the S.E.C. is seeking to disgorge her gains.
Most of the illegal profits, about $1.2 million, were earned by Paulo Lam, a resident of Hong Kong and a friend of Mr. Zirinsky. Mr. Lam settled the S.E.C.’s charges without admitting or denying wrongdoing. His lawyer did not immediately respond to a request for comment.
Mr. McGee “stole information shared with him in the utmost confidence, and as securities industry professionals he and Zirinsky clearly knew better,” said Elaine C. Greenberg, associate director of the S.E.C.’s Philadelphia office. “As this case demonstrates, we will follow each link in a tipping chain all the way to Hong Kong if necessary.”