Gary L. Martin of Seattle spent Monday night in jail and in so doing made history. He became the first person to be incarcerated for insider trading at the request of the Securities and Exchange Commission.
U.S. District Judge John Coughenour ordered Martin arrested and jailed until he complied with an SEC order to freeze the $1.1 million in profits he made by trading stock options of Santa Fe International Corp. just after the government of Kuwait announced it would buy the oil company.
SEC attorneys told Judge Coughenour Monday they feared Martin would flee the country unless he was arrested. Bail was set yesterday at $100,000.
Although people have gone to prison after being convicted in criminal cases involving stock fraud, an SEC spokesman said yesterday it is most unusual for the agency to seek the arrest of someone charged in a civil case with violating a court order.
The action is intended to demonstrate Chairman John S.R. Shad's repeated statements that a crackdown on insider trading is one of his principal enforcement priorities. The agency has been accused recently of treating these cases with leniency.
Martin, who learned of the impending Sante Fe takeover while serving as the personal accountant of one of the company's directors, purchased 800 options for $54,000. A month later, he sold them for a $1.1 million profit.
The SEC alleged that Martin stashed the profits first in a Swiss bank account and then in a series of brokerage accounts under other people's names. Last April, at the SEC's request, Judge Coughenour ordered that the assets be frozen. A week later, Martin got the order lifted by stating that he had put $900,000 in bearer bonds in a Seattle safe deposit box.
But the SEC says Martin told his attorney last week that story was untrue. Instead, he said he had put hundreds of thousands of dollars in accounts and safe deposit boxes in acquaintances' names. He also deposited about $200,000 in two bank accounts in Mexico.
Martin's quick profit on the Kuwait deal was not matched in Mexico. The value of his peso account diminished by two-thirds when the Mexican government devalued the currency. Thousands of additional dollars in negotiable checks were stolen from his hotel room in Acapulco, he said.
Martin told the SEC earlier this month that he was unable to account for at least $350,000 in Santa Fe profits.