The See-Through Stock Scam

In the end, the insider-trading scheme was as transparent as some of the inventory.

Joseph P. Keeney, a former consultant to Frederick's of Hollywood, a closely held lingerie company, bought 157,000 shares of a publicly traded rival, Movie Star Inc., over five weeks shortly before the companies announce a plan to merge last year.

Keeney paid an average cost of 97 cents per share, the Securities and Exchange Commission said; Movie Star shares jumped on news of the merger and closed at $1.46 on December 19, 2006, the day the deal was announced.

His risk-free profit on the deal? A not-so-skimpy $77,540, the S.E.C. asserts.

The problem, federal regulators say, is that Keeney was advising Frederick's board on May 17, 2006, when directors formally moved to pursue the merger. And starting the next month, Keeney directly participated in the merger talks and served as an intermediary between the two boards, the S.E.C. said.

That gave him access to "material, nonpublic information" about not only the possible merger, but Movie Star's internal financial projections as well.

Without admitting or denying the allegations, Keeney agreed to settle the charges by paying $158,751.46. That is twice his estimated gain on the insider trading, plus interest.

by Mark Stein