A former corporate executive and his friend, who both pleaded guilty to charges involving alleged insider trading, are now also facing enforcement allegations from the U.S. Securities and Exchange Commission (SEC) over the same incident.
In a complaint filed in federal court in Idaho, the SEC charged Michael Smith, the former president and chief operating officer of PetIQ, Inc., and his friend, Douglas Joshua Dalton, alleging that they breached securities rules by trading ahead of PetIQ’s planned acquisition by private equity firm Bansk Group LP in August 2024.
According to the SEC’s complaint, Bansk Group approached PetIQ with an acquisition offer in June 2024. In late July, Smith used his ex-wife’s brokerage accounts to buy shares in the company.
The complaint noted that despite divorcing in 2023, Smith and his ex continued to communicate regularly, and he managed trading in her accounts.
And, the regulator alleged that on July 26, he acquired almost US$380,000 in PetIQ shares in his ex-wife’s accounts — selling several ETFs to fund the purchases, including two funds that were sold at a loss.
After the acquisition of PetIQ was announced on Aug. 7, Smith sold the shares in his ex’s account, generating a US$145,772 trading profit.
Additionally, the SEC alleged that on the same day that Smith was buying shares in his ex-wife’s account, he also tipped a long-time friend, Dalton — they’d been friends since high school — to the pending deal.
Dalton then allegedly bought call options on PetIQ stock, which made him a profit of US$101,670 after the deal was announced.
In its action, the SEC is seeking disgorgement, civil penalties, permanent injunctions, and a director and officer ban for Smith.
While the SEC’s allegations haven’t been proven, both men have already pleaded guilty to criminal charges in connection with their trading.
In November last year, Smith pleaded guilty to one count of securities fraud, and Dalton pleaded guilty this Tuesday. He is due to be sentenced on that charge on June 17.