A former Green Mountain Coffee Roasters employee facing charges of insider trading has successfully delayed his preliminary injunction hearing. Originally set for Aug. 7 in the U.S. District Court in Connecticut, the hearing is now scheduled for 1 p.m. Aug. 28 at in the same venue.
A lawyer for Chad McGinnis, 35, of Morrisville, said that because the charges initially were sealed, his team needed more time to prepare for the hearing. McGinnis, formerly a system administrator for GMCR, is accused of using nonpublic information to profit from company stock trades.
McGinnis allegedly shared the inside intelligence with a friend in Connecticut, Sergey Pugach, an “application architect” for Aetna Inc., in Hartford, Conn.
Charges by the Securities and Exchange Commission detail more than $2.5 million and just under $5 million in profits the two netted, respectively, from trades they made in advance of the Waterbury-based company’s quarterly earnings announcements.
GMCR’s policy against insider trading explicitly prohibits such trades, the suit says. The company agrees: McGinnis was fired for violating the policy shortly after the charges were filed.
“The Company is appalled by the alleged actions of this individual,” a GMCR spokesperson said via email. “This appears to be a case of a determined wrongdoer that ignored the policies he acknowledged he’d read and had complied with. There is no indication that the Company’s policies were inadequate in any way.”
GMCR declined to comment further on the case or respond to questions about the impact any illegal trading may have had on the company’s other shareholders. The spokesperson offered no comment on company protocols that may have permitted a system administrator to routinely access and act on insider information for illegal profit.
According to SEC documents, attorneys for the company met with SEC officials in Boston on July 13. The federal investigator recounted confirming that “McGinnis is in charge of administrating GMCR’s Microsoft SharePoint software, a document and file management system that allows for a group of employees to work collaboratively on a single set of documents.”
Those documents included the content of GMCR’s periodic SEC filings, and the company confirmed that McGinnis would have had access to information about the company’s earnings announcements days before that information was made public.
Additionally, as system administrator, McGinnis would have had access to colleague’s emails and other shared folders in which press releases about the earnings announcements were being prepared.
McGinnis and Pugach are longtime friends and former co-workers, according to SEC documents. Having both attended Fairfield University, the two went on to work at Unilever in Trumbull, Conn., as a “Desktop Architect” and “Programmer,” respectively.
“Put simply,” the complaint says, “they have correctly predicted the reaction of GMCR’s stock price to twelve out of the last thirteen quarterly earnings announcements.”
Pugach’s mother, Bella Pugach, of Brooklyn, N.Y., is named in the case as a relief defendant. She is not implicated in any wrongdoing, however.
The investigation
The suit alleges that McGinnis and Pugach used inside intelligence to successfully predict the response of GMCR shareholders to 10 and 12 earnings reports, respectively, between 2010 and 2013. In addition to more than $7 million netted by the two, an account belong to Puglach’s mother made a roughly 40 percent profit from a bet that risked nearly all of her $100,000 balance.
In SEC documents, the federal investigator details how he pieced together the investigation.
Denver-based Scott Mascianica collected “tens of thousands of pages” of trading information on the three defendants, spanning financial accounts with a dozen brokerage firms.
It was one of these firms, TD Ameritrade, that had tipped off the SEC to suspicious stock and options trades in accounts belonging to McGinnis and Pugach.
The information obtained by the SEC included the date and time stamps of each login on each of the two defendants’ accounts, as well as the Internet Protocol (IP) address from which every transaction was initiated — a crucial piece in tying many of the friends’ allegedly illegal trades back to McGinnis’ home in Morrisville.
Phone and text message records further implicate the defendants, according to the SEC, because the two rarely communicated except within a few days before and after earnings announcements. The cell phone numbers belonging to the spouses of both McGinnis and Pugach also are identified in the suspicious records, but neither spouse is charged in the case.
Donald Hoerl, director of the SEC’s Denver Regional Office, said, “The timing of their trades was consistently and exceptionally successful, but their scheme ultimately was not.”
All the defendants’ assets have been frozen as requested by the SEC. The commission requested a jury trial, which is expected to be granted.
