A former director of Pinnacle Financial Partners has been charged with insider trading for buying shares in the target of an impending merger after learning of the deal at a meeting of the board’s executive committee.
The U.S. Securities and Exchange Commission said James C. Cope, 67, made his first purchase of Avenue Financial Holdings stock while the Jan. 5, 2016 meeting was still in progress and placed four more orders within an hour after the meeting ended.
The two bank holding companies announced their merger on Jan. 28. According to an SEC civil fraud complaint, Cope, an attorney who joined the Pinnacle board in March 2006, made unrealized profits of more than $56,000.
“We allege that Cope completely disregarded his responsibilities as an attorney and public company director and illegally seized the moment to purchase stock in an acquisition target after learning confidential, nonpublic information at a board executive committee meeting,” Walter Jospin, director of the SEC’s Atlanta regional office, said in a news release.
In a parallel criminal case, Cope pleaded guilty last week to insider trading. As part of an agreement with prosecutors, he will serve two years of probation and pay a fine of $55,000.
Avenue Financial surfaced as a potential acquisition target at a Pinnacle board retreat in September 2015. The bank was particularly attractive to many of the board members because its branches were in geographic proximity to Pinnacle’s, the SEC said.
Executives of Pinnacle and Avenue began discussions about a deal in December and, according to prosecutors, Cope and other Pinnacle directors were notified of a potential acquisition of an unnamed bank in advance of the Jan. 5 executive committee meeting.
According to the SEC, Cope’s trading records indicate he purchased 2,000 Avenue shares during the meeting and another 4,179 before the end of the day. On Jan. 11, when the banks negotiated the final terms of the nondisclosure agreement, he allegedly acquired an additional 4,000 shares.
After the merger was announced, Avenue’s stock increased more than 40% to $19.24 a share. Cope resigned from the Pinnacle board in April.