SEC Charges Investor Joseph C. Lewis and Associates with Insider Trading

The Securities and Exchange Commission (SEC) has taken legal action against investor Joseph C. Lewis for allegedly providing material nonpublic information to his then-girlfriend, Carolyn W. Carter, and his two private pilots, Patrick J. O’Connor and Bryan L. Waugh, with the intention of executing trades based on this confidential information. The SEC has also charged Carter, O’Connor, and Waugh for using the illicit information to conduct trades, resulting in a combined profit of over $545,000.

According to the SEC’s complaint, Lewis, a British national residing primarily in The Bahamas, is the controlling majority owner of a biotechnology investment fund. This position provided him with access to material nonpublic information regarding the fund’s portfolio companies. The SEC alleges that between approximately July and October 2019, Lewis breached a duty of confidentiality by illegally tipping material nonpublic information to Carter on at least two occasions, and to O’Connor and Waugh on at least one occasion.

Specifically, the SEC claims that in July 2019, Lewis became aware that a company in which the fund had a significant investment was planning to raise capital through a transaction that often led to an increase in share price. On the same day he received this information, Lewis met with Carter in a luxury hotel room, and within three hours of the meeting, Carter purchased more than $700,000 worth of the company’s common stock. After the company announced the transaction the next day, its share price increased by approximately 34.4 percent, resulting in Carter making profits exceeding $172,000. In September 2019, the SEC alleges that Lewis learned material nonpublic information about another portfolio company, which had received positive results in a clinical trial to be presented at a conference the following month. Within days, Carter, and later O’Connor and Waugh, bought the company’s common stock. Lewis allegedly provided this information to O’Connor and Waugh as an alternative to a formal retirement plan and loaned each of them $500,000 to carry out the trades. Upon the company’s public announcement of the positive clinical trial data in October 2019, its share price rose by 16.7 percent, and Carter, O’Connor, and Waugh collectively profited over $373,000.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, stated, “We allege that Mr. Lewis had access to material nonpublic information by virtue of his position as a prominent investor and breached a duty of confidentiality by tipping his close associates with that information. When insiders like Lewis take advantage of their access to such information, it erodes public trust and confidence in the fair and efficient operation of our markets. That’s why we will continue to use all the tools at our disposal to hold accountable those who abuse their positions for personal benefit and the unlawful enrichment of others.”

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges Lewis, Carter, O’Connor, and Waugh with violating the antifraud provisions of the federal securities laws. The SEC seeks permanent injunctive relief and civil penalties from all defendants, as well as disgorgement of ill-gotten gains with prejudgment interest from Carter, O’Connor, and Waugh. The complaint also includes relief defendant Jean J. O’Connor, the spouse of Mr. O’Connor.

In parallel with the SEC’s action, the U.S. Attorney’s Office for the Southern District of New York has announced criminal charges against Lewis, O’Connor, and Waugh.

The ongoing investigation is being conducted by Tim Work, with assistance from Emily Shea, Howard Kaplan, Yongping Zheng, and Kevin Gershfeld, under the supervision of Kevin Guerrero and Stacy Bogert. The litigation will be handled by Carina Cuellar, Kristen Warden, and Mr. Work, under the supervision of James Connor. The SEC acknowledges the cooperation of the U.S. Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority.