Ex-NASDAQ official sentenced for insider trading

Posted Aug. 12, 2011, at 2:20 p.m.

McLEAN, Va. — A former managing director of the NASDAQ Stock Market was sentenced Friday to 3½ years in prison after making hundreds of thousands of dollars on insider trades.

Donald L. Johnson, 57, of Ashburn, pleaded guilty earlier this year to stock fraud in U.S. District Court in Alexandria. He admitted earning $641,000 on eight separate insider trades between 2006 and his retirement in 2009. At Friday’s sentencing hearing, Johnson also was deemed responsible for a ninth transaction that lifted his total profits to more than $750,000.

As a managing director, Johnson earned $141,000 a year and regularly consulted with companies when they had news that could potentially move markets. He was legally barred from profiting on that information.

In some cases, he bought stock from companies poised to jump on good news. In other cases, he short-sold stocks to profit on bad news when shares declined.

In one 2007 trade, Johnson made $175,000 by purchasing shares of United Therapeutics before successful trial results were announced for one of its drugs — Viveta, now called Tyvaso. There is no indication that United Therapeutics or any of the other companies that Johnson traded had any knowledge of his actions.

Johnson apologized for his actions in a letter to the court.

“I’ll shoulder the remorse for the remainder of my life,” Johnson wrote to U.S. District Judge Anthony Trenga.

The 42-month sentence was roughly in line with what prosecutors sought and much longer than the 18-month sentence requested by Johnson’s attorney.

Sentencing guidelines called for a term of 37 to 46 months. But Johnson’s lawyer, Jonathan Simms, had argued that most people convicted of insider trading receive sentences below the guidelines.

Simms also said Johnson’s profits on the insider trades were essentially wiped out by losses he took on other trades.

“His thirst for trading caused him to lose often and lose big,” Simms wrote in court papers.

Neil MacBride, U.S. Attorney for the Eastern District of Virginia, where the case was prosecuted, said in a statement that “Mr. Johnson used his position at NASDAQ to make quick profits from sensitive information companies provided him. He learned what every other trader on Wall Street must now realize: We’re watching, and when you’re caught you’ll face serious time in prison.”

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