The former audit director for Chicago-based health IT company Allscripts Healthcare Solutions
was hit with civil and criminal charges Wednesday alleging that he earned $286,211 by illegally trading on insider knowledge of the company's financial performance.Authorities say (PDF)
Steven Dombrowski, 49, of Chicago, used a trading account held in his wife's maiden name to secretly buy short positions in Allscripts stock and options to sell the stock for a profit if it dropped below targets—all in the days before an April 26, 2012, quarterly earnings report that triggered a plunge in the company stock price.
By April 27, Allscripts shares on the NASDAQ had dropped 38% after the revelation that the company's earnings were about half what stock analysts had been predicting.
The sudden drop allowed Dombrowski to surreptitiously exploit his 1,000 Allscripts short-sales and another 510 put-option contracts at sizeable profit, according to civil charges filed by the Securities and Exchange Commission and the criminal indictment against him signed by a federal grand jury, all of which were unsealed in federal district court in Chicago on Wednesday.
Short sales and put-options allow investors to “bet” that a stock price will drop, and then profit if it does. The short sales allegedly netted Dombrowski about $7,000 in profits, while the put-option contracts created a $279,000 windfall.
Allscripts had a strict policy at the time forbidding trading in company stock by employees whose jobs give them access to “material nonpublic information.” The blackouts on trades lasted at least 15 days prior to company earnings reports, including the one on April 26, 2012. Like all company employees, Dombrowski got two e-mails notifying that such trades were prohibited starting March 14, 2012.
A spokeswoman for Allscripts said Dombrowski left the company in December 2012, and that the company “does not discuss prior employees.” She declined to say whether Allscripts has agreed to cooperate with authorities in the cases against Dombrowski.
The company was not accused of any wrongdoing.
Dombrowski faces three civil counts of violating laws against insider trading, plus 16 criminal charges (PDF)
for essentially the same conduct. The SEC also filed a claim against his wife, Lisa Fox, that would force her to return any ill-gotten profits from the scheme involving Dombrowski's use of her Charles Schwab securities-trading account.
Neither Dombrowski nor Fox could be reached for comment, and their attorneys were not yet listed in court records. Bail for Dombrowski was preliminarily set at $4,500.
Allscripts sells electronic health-record systems
to thousands of hospitals, physician offices and nursing homes, as well as data-analysis services to support clinical, financial and population-health decisions. The company posted a $1.2 million net loss
on $1.5 billion in revenue in 2012, the most recent full year for which data are available.Follow Joe Carlson on Twitter: @MHJCarlson