MA Hedge Fund Manager Imprisoned for Insider Trading

Federal Bureau of Investigation – Boston Field Division announced today that hedge fund manager Michael K.C. Tom, age 40, of Winchester, Massachusetts, was sentenced yesterday to 12 months and one day incarceration, to be followed by three months of supervised release, for his role in an insider trading scheme.

The insider trading charges arose from Tom’s trading Citizens Bank common stock and options based on a tip from a Citizens employee about the bank’s then-impending merger with Cleveland-based Charter One Financial. Tom managed and partly owned a hedge fund based in Burlington, Massachusetts called Global Time Capital Growth Fund. The fund invested principally in equities, particularly in the banking industry.

Tom started the fund in December 2003 and made the fund’s investment decisions. Tom previously had served as a senior analyst at the Boston offices of Citizens Financial Group.

On April 28, 2004, Tom received a phone call from Shengnan Wang, a Citizens portfolio analyst who had replaced Tom in his former position at the bank. Wang told Tom that certain of her colleagues were performing due diligence of a Cleveland bank that Citizens sought to acquire. This information was highly confidential, as its public release, among other things, would have tended to drive up the price of the acquisition target’s stock, thereby making the acquisition more expensive.

Armed with this inside information, and with his knowledge of the banking industry, Tom was able quickly to narrow the possible targets to the real target, Charter One Financial. Over the next few business days, Tom traded aggressively in Charter One securities, making fifty-two purchases of either common stock and call options contracts. He made these trades in his own name, as well as on behalf of GTC Growth Fund and his relatives.

On May 4, 2004, Citizens announced that it intended to acquire Charter One. On May 5, 2004, the first day of trading after the public announcement, Tom sold virtually all of his Charter One holdings, reaping a profit of approximately $750,000.

Tom was originally sentenced on November 28, 2006 to three years probation by the Honorable Reginald C. Lindsay. The Government appealed that sentence, and the Court of Appeals for the First Circuit overturned the sentence. The First Circuit’s decision was later vacated by the U.S. Supreme Court in light of the Court’s decision in United States v. Gall, which involved the standard of review to be applied by Courts of Appeal to lower court sentencing decisions.

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