On Tuesday, the Securities and Exchange Commission charged Jordan Peixoto, the friend of a roommate of a Pershing Square Capital Management analyst, with insider trading in Herbalife (HLF) shares. The SEC also settled with the Pershing analyst's roommate, Filip Szymik, however, it did not charge Pershing Square or the analyst who roomed with Szymik. In fact, the SEC did not even name the Pershing analyst other than to say he is 28-years old, of Polish descent, and left the firm in 2013.
Pershing Square and its head William Ackman staked $1 billion in a bet against Herbalife that accused the multi-level supplements seller of acting as a pyramid scheme. Those allegations, first made in December 2012, caused Herbalife shares to tumble nearly 40% and an ongoing battle between Ackman, the company and other investors as prominent as Carl Icahn has turned Herbalife into one of the most-watched companies on Wall Street.
The SEC alleges that Szymik, a roommates with the Pershing analyst, was made aware of his work regarding Herbalife with an understanding that he would not trade in the company's stock on the basis of that information. Nonetheless, Szymik divulged that information to Peixoto, another close friend.
It was Peixoto, a former research analyst at Deloitte, that the SEC alleges traded based on that non-public insider information, breaching the confidence the Pershing analyst placed in Szymik.
On Dec. 19, a day before Ackman went public with his Herbalife short, the SEC alleges Peixoto purchased put options against Herbalife shares. When Ackman disclosed his position, Herbalife shares tumbled 39%, creating a $339,421 paper gain for Peixoto. Perhaps realizing he might get caught, Peixoto tried to exit those profitable put contracts. Ultimately, the SEC's alleges Peixoto sold his Herbalife put contracts for a $47,100 profit.
Szymik settled with the SEC, according to the Tuesday complaint, agreeing to pay a $47.100 penalty. The SEC is asking for a hearing to judge the amount to fine Peixoto as a result of his Herbalife trade, however, it did not recommend criminal charges.
Pershing Square declined to comment for this article.
-- Written by Antoine Gara in New York