SEC v. Ken Peterman — U.S. Securities and Exchange Commission Litigation Release No. 26197, dated March 4, 2024.
The SEC charged Ken Peterman, former CEO of Comtech Telecommunications Corp., with insider trading. Peterman allegedly sold Comtech shares while possessing material non-public information about the company's impending negative earnings announcement, thereby avoiding approximately $12,445 in losses. A parallel criminal action was also brought against him.
In Plain English
Imagine you know a big secret about a company's upcoming bad news that will make its stock price drop. Before the news comes out, you sell all your stock to avoid losing money. That's what Ken Peterman, the former CEO of Comtech, is accused of doing. He allegedly sold his company's stock after learning about bad financial results but before they were announced, and he's now facing charges.
Disclaimer: all facts are drawn from the SEC's own filings; the claims described are allegations unless and until a court rules or the parties settle, and some cases end in dismissal.
How the Alleged Scheme Worked
- Receiving Confidential Information On March 4, 2024, Ken Peterman, then CEO of Comtech, received confidential presentations detailing that the company's upcoming quarterly earnings would show a significant 12% decrease in net sales compared to the previous quarter.
- Awareness of Trading Restrictions Peterman was aware of Comtech's trading blackouts, including a recurring quarterly blackout designed to prevent insider trading before earnings announcements. He had previously certified his understanding of the company's conduct policy regarding these restrictions.
- Termination for Cause On the evening of March 12, 2024, Peterman was informed by Comtech directors that he was being terminated from his positions as CEO, president, and Chair of the Board, effective immediately and for cause.
- Attempted Sale of Shares A few hours after his termination on March 12, 2024, and while subject to two trading blackouts, Peterman placed an order to sell all 8,241 Comtech shares held in his equity compensation account.
- Sale Execution On March 13, 2024, starting around 9:35 a.m., Peterman's brokerage firm began selling the Comtech shares in his compensation account. The sale was completed within 25 minutes, yielding net proceeds of $40,454.54.
- Public Announcement of Negative Earnings On March 18, 2024, after the market closed, Comtech officially filed its Form 10-Q, announcing the negative earnings results for the second quarter of fiscal year 2024.
- Stock Price Decline Following the public announcement of its negative earnings, Comtech's stock price dropped significantly. On March 19, 2024, the stock closed at $3.43 per share, a 25.4% decrease from its previous closing price of $4.60.
- Loss Avoidance By selling his Comtech stock before the negative earnings announcement, Peterman allegedly avoided losses of approximately $12,445.44.
- Attempted Additional Sale Peterman also directed his financial advisor to sell additional Comtech stock held in a separate account. However, this sale could not be completed due to a trading blackout, preventing him from avoiding an estimated additional $110,000 in losses.
The Enforcement Action
SEC charges Ken Peterman, former CEO of Comtech Telecommunications Corp., with insider trading for selling shares based on material non-public information about the company's negative earnings. Peterman allegedly avoided losses of approximately $12,445. The SEC seeks permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and an officer and director bar. The U.S. Attorney’s Office for the Eastern District of New York announced parallel criminal charges against Peterman.
Named in this action: Ken Peterman.