By Erica Reed
November 2nd, 2012 12:00pm
The Securities and Exchange Commission announced that on October 26, 2012, the Honorable Robert M. Dow, Jr. of the United States District Court for the Northern District of Illinois sentenced Thomas P. Flanagan to 21 months of incarceration followed by supervised release of 12 months and ordered Flanagan to pay a $100,000 penalty.
Flanagan, a former Deloitte and Touche LLP partner, pleaded guilty to one count of criminal securities fraud for engaging in insider trading after he obtained material, nonpublic information about several Deloitte clients, including Best Buy Co. and Walgreen Co. (WAG). The information had not yet been disclosed to the public and concerned material, market-moving events such as earnings results, earnings guidance, and acquisitions. Flanagan used that information himself and shared it with a relative to make illegal trading profits of over $430,000. Judge Dow said his actions constituted a “breach of trust” that his partners and clients had placed in him and severely tarnished his reputation.
The criminal charges arose out of the same facts that were the subject of a civil action that the SEC filed against Flanagan and his son, Patrick T. Flanagan, on August 4, 2010. The 2010 civil action resulted in a settlement with the SEC requiring Flanagan to pay a $1.05 million penalty. His son, Patrick Flanagan, paid a $123,270 penalty.
Securities fraud carries a maximum punishment of 20 years in prison. Flanagan’s plea agreement called for a term of three to four years in prison, and prosecutors sought at least 37 months. The prosecutor said Flanagan had committed a serious crime that feeds a public perception that the investment world lacks what he called “a level playing field,” necessitating a punishment that will discourage others.
Flanagan is one of the most prominent business executives in recent Chicago history to be convicted of insider trading.
Erica Reed is an associate attorney at Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor, P.A. She is a member of the Business Torts Department of the firm. Her practice focuses primarily upon representing individuals and entities in the areas of securities litigation and arbitration, as well as complex business and antitrust litigation.
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