From SEC Press Release:: In a separate case, the Commission filed a civil action against Paul Johnson, 42, a former managing director and senior research analyst at Robertson Stephens for issuing fraudulent research reports. The Commission alleges that Johnson issued research reports and made public statements regarding mergers proposed by two public companies in which he failed to disclose that he had conflicts of interest because he owned stock that, upon completion of each of the mergers, would yield enormous financial windfalls for Johnson. The Commission further alleges that, in 2001, Johnson issued false and misleading “buy” recommendations on another public company that were inconsistent with his privately held belief. In connection with the research reports, the Commission instituted and simultaneously settled administrative proceedings against Robertson Stephens.
In a civil action filed in U.S. District Court for the Southern District of New York, the Commission charged that former Robertson Stephens research analyst Paul Johnson provided positive research coverage in 1999 and 2000 on Redback Networks Inc. and Sycamore Networks Inc., after they had announced proposed mergers with private companies. Johnson praised both mergers in his research reports and media statements, but failed to disclose that his supposedly objective advice was infected by serious conflicts of interest.
In both cases, he owned stock in the private companies that would be exchanged for public company shares if the mergers were completed, creating multimillion-dollar windfalls for Johnson. In acquiring his holdings in the private companies that were the subjects of the merger proposals, Johnson violated Robertson Stephens internal policy that required employees to obtain prior written approval from the firm for all private investments. Moreover, at the time that Johnson issued his reports and statements concerning the proposed mergers, he did not disclose to Robertson Stephens his personal holdings in the affected companies or the magnitude of his financial interest in the outcome of the mergers.
The Complaint further alleges that in January 2001, Johnson spoke privately about Corvis Corp., another company that he covered, to a committee that was responsible for making investment decisions for a group of partnerships that had been formed by Robertson Stephens and senior Robertson Stephens executives in which Johnson and other senior Robertson Stephens executives were investors. In response to a question, Johnson told the committee that he would not buy Corvis stock at the prevailing market price, but would buy at a price that was approximately half of the current price.
Johnson’s statements to the committee directly contradicted his existing “buy” recommendation on Corvis. After Johnson spoke, the committee voted to sell all the Corvis stock held by two partnerships. In addition, the day after he made his private recommendation to the committee, Johnson sold nearly all of his Corvis stock. Two days after his stock sale, Johnson issued another research report reiterating his buy recommendation on Corvis, but failed to disclose that he had sold his Corvis stock.