The Securities and Exchange Commission and the Justice Department have brought civil and criminal charges against a Chicago accountant who used his wife’s trading account to short-sell shares in the health care information company where he was director of internal audit ahead of the public release of the company’s financial results, earning more than a quarter-million dollars in profits.
The SEC alleges that Steven M. Dombrowski, a 49-year-old CPA, confidentially learned through his job at Allscripts Healthcare Solutions that the company’s first-quarter 2012 financial results were much worse than anticipated and the company would miss its earnings target. Despite a company-imposed blackout period on trading its securities, Dombrowski secretly used his wife’s account at Charles Schwab to trade Allscripts securities ahead of the bad news and profit on the nonpublic information.
In a parallel action, the U.S. Attorney’s Office for the Northern District of Illinois also announced criminal charges Wednesday against Dombrowski.
“As alleged in our complaint, Dombrowski attempted to profit off his company’s poor financial results and hide his breach of duty to his employer by conducting his illegal trading through his wife’s account,” said Timothy L. Warren, associate director of the SEC’s Chicago Regional Office, in a statement Wednesday. “His efforts have landed him in court.”
According to the SEC’s complaint filed in federal court in Chicago, based on his confidential knowledge of the company’s impending poor financial results, Dombrowski sold short 1,000 shares of Allscripts stock in the weeks leading up to the release of the company’s first-quarter earnings. He also purchased more than 510 Allscripts put option contracts that would be profitable only if the company’s stock price went down.
The first-quarter results, which were announced on April 26, 2012, included earnings per share that were approximately only 50 percent of the consensus estimates predicted by stock analysts. Allscripts also announced that its chief financial officer would soon leave the company for another job, and the chairman and several other members of the board of directors had resigned.
Immediately after the release of the quarterly results, Dombrowski purchased Allscripts stock to close his short position. The next day he sold all of his options positions. The company’s common stock value fell approximately 35.7 percent on April 27, and Dombrowski’s insider trading resulted in illegal profits of $286,211.55. He no longer is employed by Allscripts.
The SEC’s complaint charges Dombrowski with violating the securities laws and seeks a judgment permanently enjoining Dombrowski from future violations of these provisions of the federal securities laws and ordering disgorgement of ill-gotten gains plus prejudgment interest and a penalty. The SEC’s complaint also names Dombrowski’s wife Lisa Fox as a relief defendant for the purposes of recovering disgorgement plus prejudgment interest for the illegal trades made in her account.