Popular Paint Brand Insider Trading Results In Prison Term: Feds

ACROSS CONNECTICUT — A former analyst for a major financial ratings agency is to spend more than a year in prison for an insider trading scheme involving his hairdresser, a jeweler and two major paint brands sold prominently in Connecticut.

Geoffrey S. Berman, the United States Attorney for the southern district of New York, announced that Sebastian Pinto-Thomaz, 34, a former credit ratings analyst at Standard & Poor’s, was sentenced in Manhattan federal court to 14 months in prison for participating in two schemes to trade on material, nonpublic information in advance of the Sherwin-Williams Company’s acquisition of the Valspar Corporation.

Valspar is the brand sold by Lowe's.

Pinto-Thomaz was convicted on April 26, following a jury trial before U.S. District Judge Jed S. Rakoff, who also imposed Monday's sentence.

In summarizing the case, Berman said, "As an employee of Standard & Poor’s, Sebastian Pinto-Thomaz was privy to potentially lucrative information about business acquisition plans. Instead of protecting that information, as he had sworn to do, he shared it with a friend and with his hairdresser. In turn, they bet on a stock that they knew to be a sure thing, and raked in nearly $300,000 in profits. Pinto-Thomaz painted himself into a corner when he and his co-defendants exploited insider information to reap illegal profits. Now they all face time in prison for their misdeeds."

When a company announces an acquisition, the acquiring company often seeks the opinion of a credit rating agency regarding the potential impact that the acquisition could have on the acquiring company’s creditworthiness, Berman said. Therefore, companies often contact rating agencies before an acquisition is publicly announced in order to secure the rating agency’s views on how a possible acquisition could impact a company’s credit rating, he said.

All major rating agencies offer a service — sometimes known as a Rating Evaluation Service, or RES — that provides the company with a rating committee decision with respect to a proposed acquisition.

In March 2016, Standard and Poor’s, a credit rating agency in New York, assigned Pinto-Thomazto work on a RES for the Sherwin-Williams Company in advance of its contemplated but unannounced acquisition of the Valspar Corporation, according to casae records.

In connection with the assignment, Pinto-Thomaz received material, nonpublic or "inside" information the deal about Sherwin-Williams’s planned acquisition of Valspar prior to the public announcement of the acquisition. S&P's written policies prohibited the unauthorized disclosure of confidential information, which included the inside information, Berman said.

During his tenure at S&P, Pinto-Thomaz reviewed and certified his duties of loyalty and confidentiality to S&P and its clients, according to case records.

In March 2016, Pinto-Thomaz passed the inside information about the paint merger to Jeremy Millul, a friend, and to Abell Oujaddou, his hairdresser, so that they could "use it to make profitable trades in Valspar stock and options.," Berman said.

On March 21, 2016, the first trading day after the public announcement of the acquisition, the price of Valspar stock increased approximately 23 percent over the prior day’s close.

Millul, a Manhattan jeweler opened a brokerage account on March 13, 2016, and shortly thereafter purchased 480 shares of Valspar common stock, case records show. On March 18, 2016, the last trading day before the acquisition was publicly announced, Millul also purchased 75 out-of-the-money Valspar call options, according to case records.

After the acquisition was publicly announced, Millul sold his Valspar stock and options for approximately $106,806 in profits, Berman said.

Oujaddou, a Manhattan hairstylist and salon owner who has known Pinto-Thomaz for years and is a close friend with his mother, was given inside information during a haircut on March 8 or 9, 2016, according to case records. On March 10 through March 18, 2016, Oujaddou, who had never previously purchased Valspar or Sherwin-Williams purchased 8,630 shares of Valspar stock, case records show.

After the acquisition was publicly announced, Oujaddou sold his Valspar shares for approximately $192,080 in profits, according to case records.

Following the trading, Oujaddou met Pinto-Thomaz in the paint aisle of a hardware store and paid him a kickback, Berman said.

Pinto-Thomaz denied having a relationship with anyone on the list of pre-merger trading.

In addition to his prison term, Pinto-Thomaz was sentenced to three years of supervised release and ordered to pay a fine of $15,000 and a forfeiture money judgment in the amount of $7,500.

Millul and Oujaddou each previously pled guilty and were to be sentenced on July 30.