A former Nasdaq Stock Market official who was entrusted by top corporate executives with sensitive details about their companies secretly traded on the information from his work computer to net more than $750,000 U.S. in illegal profits, federal government officials said.
Donald Johnson, 56, pleaded guilty to one count of criminal securities fraud on Thursday in federal court in Virginia related to a series of stock trades in companies that, among things, make solar panels, market drugs and sell pet food.
"This case is the insider-trading version of the fox guarding the henhouse," said Robert Khuzami, enforcement director of the Securities and Exchange Commission, which filed a related civil complaint.
It is among the most brazen in a recent string of high-profile insider-trading cases because Mr. Johnson, in his role at Nasdaq, was given inside information about corporate announcements such as earnings shortfalls or departures of top executives. Once the news came out, he closed out his stock positions and took profits, according to court documents. He traded through an account in his wife's name, but used his computer at his Manhattan office, prosecutors said.
Johnson, of Ashburn, Va., worked in various positions at Nasdaq and its affiliates for 20 years until his retirement in 2009. According to court documents, he started the scheme in 2006, when he transferred to the Nasdaq OMX Group exchange's market intelligence desk, where he advised chief executives and chief financial officers about the impact that coming news might have on their companies' share prices.
Johnson hasn't settled with the SEC, which is seeking to recover money from him and his wife, Dalila Lopez, who is a registered nurse. His wife is named in the civil complaint but hasn't been accused of any wrongdoing.
Johnson acted on confidential information almost as soon as he learned of it from company executives, according to court documents. On Oct. 30, 2007, for instance, Johnson spoke by phone with executives, including the chief financial officer and the general counsel, of United Therapeutics Corp., who told him about the success of a drug trial, according to the SEC. The next day, he bought 10,000 shares of the company in his wife's brokerage account.
On Nov. 1, after United Therapeutics announced the results of the trial, Johnson began selling the stock online, generating $175,000 U.S. in illegal profits, the SEC said. A United Therapeutics spokesman said it was "troubling when you see this happen with people in positions of trust."
Justice Department officials charged Johnson with trading ahead of eight corporate events that earned him more than $640,000 U.S. The SEC, in its suit, added a ninth instance, bringing total profits to $755,000 U.S.
The disclosure of an employee's insider trading is an embarrassment for Nasdaq. In February, it admitted that hackers had broken into one of its computer networks and recently failed in its effort to lead a hostile takeover of the New York Stock Exchange.
A Nasdaq spokesman said, "We're fully cooperating with authorities, but have no comment beyond that."
Johnson's scheme came to light after Wall Street regulators said they detected suspicious activity in his wife's account. The Financial Industry Regulatory Authority, the self-regulatory body that oversees brokers, referred the situation to the SEC and other law-enforcement officials, the organization said Thursday. It couldn't be determined when Finra made the referrals to the SEC. Johnson's lawyer said he was first contacted by the government in December.
Johnson faces as much as 20 years in prison, though he is likely to serve significantly less time based on sentencing guidelines. The government, in the plea agreement, indicated it may argue for a stiffer sentence "for abuse of a position of special trust." Johnson's sentencing is set for Aug. 12.
