Ex-Morgan Stanley broker pleads guilty in insider trading case

Reuters

By Jonathan Stempel

Sept 30 (Reuters) - A former Morgan Stanley financialadviser pleaded guilty to an insider trading charge for tippinga childhood friend to Gilead Sciences Inc's plan in2011 to buy Pharmasset Inc, three days before the $11.2 billiontakeover was announced, court and regulatory records show.

Kevin Dowd, 38, on Monday pleaded guilty to conspiracy tocommit securities fraud before U.S. District Judge Anne Thompsonin Trenton, New Jersey.

The Boca Raton, Florida resident faces up to five years inprison and a $250,000 fine when he is sentenced on Jan. 15,2014.

Dowd's plea was announced by U.S. Attorney Paul Fishman inNew Jersey.

Peter Willis, a lawyer for Dowd, did not immediately respondto a request for comment.

According to court papers, Dowd learned about the pendingmerger from a Pharmasset director, who had been the largestcustomer of the Aventura, Florida branch where Dowd had worked.

Prosecutors said Dowd on Nov. 18, 2011 told his friend aboutthe merger, prompting the friend to buy $196,000 of Pharmassetstock and pass on the tip to another investor who boughtPharmasset call options, also betting the stock would rise.

Those bets paid off after the merger of the two makers ofantiviral drugs was announced on Nov. 21, 2011, valuingPrinceton, New Jersey-based Pharmasset at a roughly 89 percentpremium over its share price at the time.

Prosecutors said Dowd's friend netted a $163,621 profitafter buying $195,808 of Pharmasset stock, while the otherinvestor netted a $544,706 profit on the stock options.

According to prosecutors, Dowd admitted to receiving a$35,000 cashier's check in exchange for the initial tip.

Dowd's friend and the person tipped by that friend areidentified only by their initials in court papers.

Brokerage records show that Dowd worked for Morgan StanleySmith Barney in Aventura at the time of the tip, but is nolonger registered with a brokerage.

Morgan Stanley said after Dowd's arrest in January that ithad cooperated with authorities, and that Dowd had been fired inDecember 2012.

Gilead is based in Foster City, California.

The case is U.S. v. Dowd, U.S. District Court, District ofNew Jersey, No. 13-cr-00636.

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