Ex-hedge fund manager sentenced for insider trading

Date: Monday, July 20, 2009
Author: Jason Szep, Reuters

* Tom sentenced to a year and a day in federal prison

* Charges stem from $10.5 bln Citizens' deal in May 2004

BOSTON, July 17 (Reuters) - A former hedge fund manager in Massachusetts was sentenced to a year and a day in federal prison in a 5-year-old insider trading case that also netted a husband and wife, prosecutors said on Friday.

The manager, Michael Tom, 40, was charged in 2005 with five counts of insider trading related to Citizens Financial Group Inc's $10.5 billion acquisition of Charter One Financial Inc in May 2004. The trades netted Tom about $750,000 in profits.

Tom was sentenced late on Thursday, said Michael Loucks, acting U.S. attorney for the District of Massachusetts, in a statement.

Tom was, until December 2003, a senior analyst at a Citizens unit that examined banks that Citizens wanted to buy, according to court papers. He left to establish Global Time Capital Management LLC, the Burlington, Massachusetts-based general partner of GTC Growth Fund LP hedge fund.

Prosecutors said Shengnan Wang, a Citizens analyst and investor in the hedge fund, called Tom on April 28, 2004, and told him that Citizens was conducting due diligence on a Cleveland-based bank that Citizens was about to buy.

Tom bought securities for his fund, his relatives and himself in each of three banks, including Charter One, that he believed might be the target, prosecutors said. He then made 52 purchases of stock and options in Charter One over the next three business days, they said.

On May 4, 2004, Citizens said it would buy Charter One at a 23.7 percent premium. Charter One shares rose 22 percent the following day, and Tom sold most of the securities he had bought, court papers show.

Providence, Rhode Island-based Citizens is a unit of Royal Bank of Scotland Plc (RBS.L).

Wang and her husband, Hai Lu, pleaded guilty to insider trading charges in the matter on Nov. 4, 2005. They were each sentenced a year later to one year of probation and five hundred hours of community service.

In May, Tom agreed to pay more than $1 million to settle a civil case with the U.S. Securities and Exchange Commission related to the same charges.