Oakland Investment Advisor, John Mendes Charged With Securities Fraud
Defendant Traded On Friend’s Inside Information And Generated $242,000 Of Trading Profits In Family and Clients’ Accounts
(STL.News) John Mendes, a registered investment advisor, was charged in a federal information filed today with securities fraud for trading upon non-public inside information, announced United States Attorney Stephanie M. Hinds and Federal Bureau of Investigation Special Agent in Charge Sean Ragan.
According to the information filed in Oakland federal court, Mendes, 39, formerly of Oakland, is a registered representative and investment adviser who learned non-public information from his friend, identified in the information only as “Insider One.” At the time of the allegations in the information, Insider One worked for Granite Construction, Inc. (Granite), a construction materials company headquartered in Watsonville, California.
Granite focuses on large scale public and private infrastructure projects and is traded publicly on the New York Stock Exchange. Granite negotiated with and eventually acquired another company in 2018 that also traded on the New York Stock Exchange, Layne Christensen Company (Layne). Layne was a water management, construction, and drilling company headquartered in The Woodlands, Texas. Granite publicly announced the agreement to acquire Layne on February 14, 2018.
The information alleges that Insider One was actively engaged in Granite’s negotiations to acquire Layne and learned non-public information regarding the deal. During this period of time, Insider One was also a friend of Mendes.
The information alleges that from approximately November 2016 through February 2018, in the course of their friendship Insider One disclosed material nonpublic information to Mendes about Granite’s potential acquisition of Layne before that information was available to the public. Mendes had a history of sharing confidences with Insider One, who expected that Mendes would maintain the confidentiality of the nonpublic information. The information asserts that Mendes breached that duty of confidence and used Insider One’s material non-public information to trade on Layne’s stock before Granite’s public announcement on February 14, 2018.
The information describes instances of Mendes’s trading based on inside information and alleges that between November 2017 and January 2018 Mendes purchased Layne stock and options in accounts in the names of family members and in no fewer than 10 clients’ accounts. All of the securities were sold later for a profit following the February 14, 2018, announcement of Granite’s intent to acquire Layne. The purchases and subsequent sales of Layne stock generated profits of about $242,000 in those accounts.
Mendes is expected to make his initial appearance in federal court to face the securities fraud charge later this week.
Mendes is charged in the information with one count of securities fraud in violation of 15 U.S.C. §§ 78j(b) and78ff and Title 17 C.F.R. § 240.10b-5. If convicted of securities fraud, he faces a maximum sentence of 20 years in prison and a fine of $5,000,000. If convicted, he will also be required to pay restitution. Any sentence following conviction, however, would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.
A federal information merely alleges that crimes have been committed, and every defendant is presumed innocent until proven guilty beyond a reasonable doubt.
In a separate civil action, the United States Securities and Exchange Commission filed a civil enforcement action today in the Northern District of California alleging that Mendes engaged in insider trading.
The case is being prosecuted by the Corporate and Securities Fraud Section of the U.S. Attorney’s Office for the Northern District of California. The prosecution is the result of an investigation by the FBI. The U.S. Attorney’s Office and the FBI appreciate the assistance of the Market Abuse Unit of the Securities and Exchange Commission’s Division of Enforcement.