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Hedge Fund Manager Sentenced in Insider Trading Case
Traded on Tip About a Citizens Bank Merger in 2004
BOSTON, MA—A hedge fund manager was sentenced late yesterday to a year and a day in
federal prison for his role in an insider trading scheme. The sentencing came nearly three years
after the man’s original sentencing hearing and followed a series of appeals that ultimately
reached the United States Supreme Court.
Acting United States Attorney Michael K. Loucks and Warren T. Bamford, Special
Agent in Charge of the Federal Bureau of Investigation - Boston Field Division, announced
today MICHAEL K.C. TOM, age 40, of Winchester, Massachusetts, was sentenced by the
Honorable Nathaniel M. Gorton to 12 months and one day incarceration, to be followed by three
months of supervised release.
The insider trading charges arose from TOM’s trading Citizens Bank common stock and
options based on a tip from a Citizens employee about the bank's then-impending merger with
Cleveland-based Charter One Financial. TOM managed and partly owned a hedge fund based in
Burlington, Massachusetts called Global Time Capital Growth Fund. The fund invested
principally in equities, particularly in the banking industry. TOM had started the fund in
December 2003 and made the fund’s investment decisions. TOM previously had served as a
senior analyst at the Boston offices of Citizens Financial Group.
On April 28, 2004, TOM received a phone call from Shengnan Wang, a Citizens
portfolio analyst who had replaced TOM in his former position at the bank. Wang told TOM
that certain of her colleagues were performing due diligence of a Cleveland bank that Citizens
sought to acquire. This information was highly confidential, as its public release, among other
things, would have tended to drive up the price of the acquisition target’s stock, thereby making
the acquisition more expensive.
Armed with this inside information, and with his knowledge of the banking industry,
TOM was able quickly to narrow the possible targets to the real target, Charter One Financial.
Over the next few business days, TOM traded aggressively in Charter One securities, making
fifty-two purchases of either common stock and call options contracts. He made these trades in
his own name, as well as on behalf of GTC Growth Fund and his relatives.
On May 4, 2004, Citizens announced that it intended to acquire Charter One. On May 5,
2004, the first day of trading after the public announcement, TOM sold virtually all of his
Charter One holdings, reaping a profit of approximately $750,000.
TOM was originally sentenced on November 28, 2006 to three years probation by the
Honorable Reginald C. Lindsay. The Government appealed that sentence, and the Court of
Appeals for the First Circuit overturned the sentence. The First Circuit’s decision was later
vacated by the U.S. Supreme Court in light of the Court’s decision in United States v. Gall,
which involved the standard of review to be applied by Courts of Appeal to lower court
sentencing decisions.
The case was investigated by the Federal Bureau of Investigation. It was prosecuted by
Assistant U.S. Attorney Jonathan Mitchell of Loucks’ Economic Crimes Unit and Special
Assistant U.S. Attorney Brad Ali. Press Releases | Boston Home
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