Disney employee arrested for insider trading
Tried to sell company's quarterly earnings to hedge fundsAfter completing an elaborate sting operation, the FBI arrested a Disney employee and her boyfriend Wednesday for trying to sell corporate secrets to hedge fund managers and other Wall Street traders.
The FBI and other federal regulators said the plot was dependent on the ability of Bonnie Hoxie to covertly exploit her position as an assistant to Zenia Mucha, Disney's head of corporate communications.
Hoxie's intent was to obtain Disney's quarterly financial report a few days before its public release in May, then give it to her boyfriend, Yonni Sebbag, who had arranged to sell it for $15,000.
But almost nothing went according to plan. In the end, Hoxie and Sebbag ended up offering less information than they advertised, and they sold it to undercover FBI agents.
The plot began in March when Sebbag sent an e-mail to at least 33 professional investors in the U.S. and Europe asking if they'd be interested in purchasing advance access to Disney's report. Promising "discretion" and "confidentiality," Sebbag sent the e-mails from a FedEx Kinko's computer in Culver City that he rented under the name Jonathan Cyrus.
Several who received the e-mail forwarded it to authorities, and the FBI coordinated a sting operation with, among others, an agent who acted the part of a hedge fund trader.
"To show good faith and build trust," Sebbag passed along to the undercover agent this nugget of information concerning Disney's CEO: "Bob Iger is in serious and advanced negotiations with two private equity firms to sell them the ABC network, but no price has been determined yet."
That particular e-mail was dated March 15. On Wednesday, Disney, which has been cooperating with the FBI, released this statement: "The reference in the complaint to conversations regarding the ABC Network were and are false."
Sebbag's intention was to strike a relationship with the faux hedge fund manager whereby he'd sell him information obtained by Hoxie on an ongoing basis. He was seeking at least 30% of any profits the hedge fund manager would make from trading Disney stock and options.
On May 8, three days before Disney was set to release its earnings, Sebbag e-mailed to three people -- all of whom were undercover FBI agents -- a 107-page document titled "The Walt Disney Company Q2 Fiscal 2010 Key Topics Speaking Points." All but two of the pages were headed, "confidential: for legal review only."
The document, though, did not contain the financial data Sebbag promised his customers. For that, they'd have to wait.
An hour and 43 minutes before Wall Street's closing bell on May 11, earnings day for Disney, Sebbag finally told his customers that Disney would be reporting within the next few hours that it earned 48 cents a share during the quarter, two cents better than what analysts were expecting.
But while he presumably got that information from Hoxie, she was still having trouble gaining access to the actual report.
"Is it coming or what," Sebbag e-mailed Hoxie 51 minutes before the closing bell that day. "Patience my dear," she responded. "It is fully used," he wrote back.
Hoxie then wrote: "What would you suggest I do. If I could wave my magic wand and give you what you want -- I would. However, since that is not going to happen, I suggest you call on your inner Buddhist -- and CHILL the f' out."
Sebbag wasn't able to give his customers advanced access to the earnings report, as he said he would, but his tip that Disney would report a 48-cent-per share profit proved accurate, and three days later he was in New York collecting a $15,000 fee, paid to him by undercover FBI agents.
Apparently confident in the success of the scheme, Sebbag confided that he was worried that he might have been tricked by the FBI or the SEC.
He also promised his new customers a steady stream of insider information that he would get from Hoxie and pass along to them, for a price. "We made a deal that she'll get me all the e-mails, all the time," he told the undercover agents.
He also said that her share of the money made from what was intended to be ongoing insider-trading activity would be enough to ensure she'd never want to leave her job, even it meant a promotion.
FBI agents arrested Hoxie, 33, a Disney employee since December 2007, and Sebbag, 29, in Los Angeles and charged them with conspiracy and wire fraud. If convicted, they face up to 20 years on the latter charge and up to five years on the former.
How valuable the inside information Hoxie and Sebbag were peddling remains an open question, considering Disney's stock fell 2% after its earnings were released on May 11, despite having beaten Wall Street's profit expectations.