SEC Settles Probe Into Trading Of Sirius
Tuesday, December 20, 2005
For once, Howard Stern isn't the one in trouble with the feds.
But the shock jock's move to Sirius Satellite Radio Inc. was at the center of charges of insider trading that resulted in a guilty plea and a legal settlement yesterday.
Word of Stern's decision to jump from broadcasting to Sirius, announced Oct. 6, 2004, proved to be too great a temptation for Gary D. Herwitz, former president of Mahoney, Cohen & Co., Stern's longtime accounting firm, and Tracey A. Stanyer, a former vice president at Sirius, according to an SEC complaint.
The men acted on advance knowledge of Stern's move to Sirius to make tens of thousands of dollars off trading in the company's stock, the Securities and Exchange Commission said. Both men agreed to pay to settle civil insider-trading charges filed by the SEC. Herwitz separately appeared in a federal court in Brooklyn yesterday to plead guilty to criminal insider-trading violations.
Prosecutors could not be reached for comment on why Herwitz was charged criminally.
For Stern, defecting to satellite radio allowed him to escape FCC censors. Stern's official Web site has a running countdown to the end of his current contract, ticking off the days till "no more FCC, no more boss, no more interference. . . . We're going to the promised land!" Stern, whose contract with Infinity Broadcasting Corp. -- now called CBS Radio -- expires at the end of the year, will make his Sirius debut Jan. 9.
For Sirius, signing Stern to a $500 million, five-year deal was a major coup and boosted the profile of the fledgling subscription radio business. Sirius and its only competitor, District-based XM Satellite Radio Holdings Inc., charge their customers a monthly fee of about $12.95 for more than 120 channels of music, news, sports and entertainment.
When Stern's deal became public in October 2004, Sirius had about 700,000 subscribers, and XM had about 2.5 million. Stern, whose radio show boasted as many as 10 million listeners a week, had Wall Street analysts predicting that at least 1 million of Stern's fans would migrate with him to the new medium.
Herwitz learned that Stern was in talks with Sirius from Mahoney Cohen's chief executive, who was also Stern's personal accountant, several weeks before the public did, according to the SEC complaint. The chief executive advised Herwitz that the information was confidential, the SEC said. Nine days later, according to the complaint, Herwitz purchased 25,000 shares at $3.19 per share. Between Nov. 19, 2004, and Jan. 10, 2005, he sold 22,500 Sirius shares at a profit. Herwitz was required to disgorge $18,163 in profit and interest.
Herwitz, 50, who left Mahoney last summer, also agreed to pay $34,000 in civil penalties to settle the SEC charges, the agency said yesterday. He is scheduled to be sentenced on criminal insider-trading charges March 17, U.S. attorney's spokesman Robert Nardoza said. Herwitz, who is free until sentencing, faces a maximum prison term of 20 years and a potential fine of up to $5 million.
"Accountants play a trusted role as gatekeepers of our nation's securities markets. When a professional abuses his position of trust in an effort to make a quick profit, he will be held accountable," Roslynn R. Mauskopf, U.S. attorney for the Eastern District of New York, said in a news release.
Stanyer, 39, then a vice president in Sirius's automotive group, got wind of Stern's negotiations about the same time as Herwitz, in September 2004. His source was "a senior Sirius executive," according to the complaint. Stanyer, too, was cautioned that the information was confidential. On Oct. 5, 2004, after learning Stern had signed with Sirius, Stanyer bought 29,120 shares at $3.28 to $3.32 per share, the complaint said. On Oct. 7 and Oct. 8, 2004, after the move had been announced, he sold all 29,120 shares for a profit. Stanyer was required to disgorge $17,897 in profits and interest.
Sirius terminated Stanyer in April for "violating company policies," said Sirius spokesman Jim Collins.
Stanyer also agreed to pay $17,357 in penalties to settle the SEC civil charges, the agency said yesterday. The SEC also barred Stanyer from serving as an officer or a director of a public company. He does not face criminal charges, Nardoza said.
Neither Herwitz nor Stanyer admitted or denied wrongdoing in the civil settlement.
Stuart E. Abrams, an attorney for Stanyer, declined to comment. Stanyer did not return phone messages left at his home in Michigan.
An attorney representing Herwitz on the civil charges did not return a call. Marjorie J. Peerce, Herwitz's attorney in the criminal proceeding, declined to comment.