Two former vice presidents of Countrywide Financial Corp. settled charges of illegal insider trading with the U.S. Securities and Exchange Commission, the SEC told Reuters Wednesday.
The SEC said Alan Cao and Jun Shi agreed to settle without admitting or denying the charges, media reports said. The U.S. investor protection agency said Cao will pay $100,000 and Shi will pay $40,000 as part of the settlement, reports said.
The SEC said the two were accused of trading stock while knowing of confidential negative earnings information, Reuters reported.
The case centers around an October 2004 press release in which Countrywide, a Calabasas, Calif.-based financial services company, said its third-quarter earnings per share would be about a dollar less than they were in the year-earlier period, reports said.
The SEC, in a civil complaint filed in a federal district court in Los Angeles, said Cao took short positions on Countrywide stock after learning of the lower EPS results a few days before the press release was issued, according to reports.
After the company’s stock dropped following the press release, Cao bought shares to cover the borrowed shares used for the short position and made $48,352 in profit, the SEC reportedly alleged.
Cao, a vice president of financial planning, also twice tipped off Shi, a vice president of finance in the company’s treasury bank division, with the negative information, according to the SEC’s complaint, media reports said.
With those tips Shi then sold Countrywide shares and also took short positions, the SEC said, according to reports.
The SEC said that by engaging in such trading, Cao and Shi breached their duty to Countrywide not to trade on the basis of confidential corporate information, Reuters reported.
“Countrywide Financial Corporation is committed to the highest ethical standards. The company’s policies prohibiting illegal insider trading are strictly enforced,” the company said in a statement to the press.
“The two employees involved in the SEC matter were mid-level managers who are no longer with the company. Countrywide has fully cooperated with regulators in their investigation of these matters,” the company said.
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