How valuable is conversation? We often find that many people, including corporate executives, do not realize that much of their their day to day conversation needs to be kept confidential. Even if you know you are discussing critical, private matters, those around you may not have the same understanding. They may feel it is fine to repeat what they hear. But it resulted in $140,000 in fines for a Minnesota man, James Hengen, who eavesdropped on his wife’s conference calls.
From SEC Documents:
In summer 2016, Hengen misappropriated from his wife, an executive at UnitedHealth Group, Inc., material, nonpublic information that UnitedHealth was in negotiations to acquire USMD. In breach of his duty of trust and confidence to his wife, Hengen misused this information to purchase in his personal accounts shares of USMD stock. Between June 27,2016 and August 29,2016, Hengen purchased more than 8,000 shares of USMD stock, and also tipped his brother and three coworkers, who purchased 3,300 shares of USMD stock…
Mergers and acquistions:
On the morning of August 30,2016, UnitedHealth and USMD publicly announced that they had entered into a definitive agreement for UnitedHealth to acquire USMD at a price of $22.34 per share. That day, after the public announcement of the acquisition, the price of USMD stock increased over 8% on heavy trading and closed at a price of $22.18 per share. Hengen, who sold most of his USMD stock the day of the announcement, made $32,315 in illicit profits from trading in USMD stock. Hengen’s brother and coworkers, all of whom sold their USMD stock shortly after the acquisition announcement, collectively made $8,340 from trading on Hengen’s illegal tips.
On the morning of January 9,2017, UnitedHealth and Surgical Care publicly announced that they had entered into an agreement for UnitedHealth to acquire Surgical Care through a tender offer at a price of $57 per share. That day, after the public announcement of the acquisition, the price of Surgical Care stock increased over 16% on heavy trading and closed at a price of $56.65 per share. Hengen sold all of his Surgical Care stock that day. His illicit profits from trading in Surgical Care stock totaled $31,489.
… As part of her responsibilities, Hengen’s wife worked on human resource aspects of mergers and acquisitions, including the potential effects of a transaction on employment contracts and the retention of key staff. As part of her work, Hengen’s wife regularly received and worked with confidential information about companies UnitedHealth was in negotiations to acquire.
Eavesdropping on conversations:
…One morning in June 2016, before his shift began in the afternoon at the aiiport, Hengen, who was in the upstairs bedroom at the time, overheard his wife on a work conference call. He heard her mention the words “USMD” and “Dr. House.” Hengen searched the internet for both terms and learned that USMD was a healthcare company based in Texas and that “Dr. House” was Dr. John House, Chairman and CEO at USMD. Hengen knew that his wife had been traveling to Texas frequently for work, and that her work involved mergers and acquisitions. Based on these facts, Hengen concluded that UnitedHealth was in negotiations to acquire USMD.
Spying on documents:
…On or about December 27,2016, on a day Hengen’s wife was working from home, Hengen walked through the dining room where his wife was working. She was not in the room at that moment. Hengen opened his wife’s notebook that was on the table and saw references to Surgical Care Affiliates. Knowing that his wife worked on corporate acquisitions for UnitedHealth, Hengen concluded that UnitedHealth likely was in negotiations to acquire the company referenced in his wife’s notebook. Hengen knew this information was both material and nonpublic, and that it was wrong for him to trade on it.
More from the Minneapolis/St. Paul Business Journal:
UnitedHealth exec’s husband made insider trades after eavesdropping on wife, SEC alleges
By Katharine Grayson Senior Reporter, Minneapolis / St. Paul Business Journal
A Chanhassen man will pay nearly $140,000 to the Securities and Exchange Commission after regulators accused him of insider trading using information he obtained through eavesdropping on calls by his wife, a UnitedHealth Group Inc. executive.
James E. Hengen, 52, did not admit wrongdoing as part of the settlement, which was detailed in documents filed Thursday in Minnesota District Court.
The SEC did not name Hengen’s wife in the complaint and regulators did not accuse her of wrongdoing. She served as a vice president at a subsidiary of Minnetonka-based UnitedHealth during the period covered by the case.
Hengen allegedly received more than $60,000 in profits through trades he made in connection with UnitedHealth’s acquisition of two companies: USMD Holdings Inc., an Irving, Texas-based physician group that a UnitedHealth subsidiary purchased in 2016; and Surgical Care Affiliates, which UnitedHealth’s Optum spent $2.2 billion to buy last year.
Hengen also allegedly tipped off his brother and two coworkers to the pending USMD deal, sending text messages such as “hang on to usmd” and “make sure u have usmd before market close,” according to the SEC’s complaint.
Hengen determined that UnitedHealth was considering buying USMD after overhearing his wife say the company’s name during a conference call she participated in while working from home, the complaint states.
“He paid attention to her work calls that he could overhear, and asked how her work was going and whether her recent business trips to Texas had been successful,” the complaint states. “Hengen concluded from her responses that work was going well and that the acquisition negotiations were progressing.”
Using his personal accounts, he allegedly bought more than 8,000 shares and made more than $32,000 by selling most of his stock when USMD announced the deal.
Hengen learned of the Surgical Care Affiliates talks after seeing the firm’s name in his wife’s notebook, which he rifled through when she left the room, according to the complaint. He made about $31,000 through trades in connection with that transaction, the SEC said.
Protect your conversations. Human resources and merger and acquisitions departments are just a few of the many areas that need protection from eavesdropping.