A former high-level media executive and director of an upstate New York thrift has pleaded guilty to masterminding a $320,000 insider-trading scheme.
Thomas J. Farrell admitted in U.S. District Court in Manhattan that he had illegally passed insider information to three friends regarding a proposed 1993 merger between $3.9 billion-asset Rochester Community Savings Bank and Buffalo-based First Empire State Corp.
At the time, Mr. Farrell was a director of Rochester Community.
Sentencing is scheduled for June 6. Mr. Farrell, a former top executive of Arlington, Va.-based media giant Gannett Co., faces up to 10 years in prison and a fine of up to $320,000.
"This case represents illegal insider trading by persons at the highest corporate levels," said U.S. Attorney Mary Jo White after Mr. Farrell entered his plea. "The public has a right to expect scrupulously honest behavior from such persons."
Mr. Farrell could not be reached for comment.
The criminal investigation into Mr. Farrell's activities stemmed from civil suits filed against six defendants last year by the Securities and Exchange Commission.
Mr. Farrell was the only one of the six who refused to settle the case with the SEC. The other five have agreed to give up their profits and pay fines of about $455,000.
The criminal charges against Mr. Farrell, which included securities fraud, are separate from the SEC's civil suit, which remains pending. The criminal investigation is continuing against the other five.
Mr. Farrell, former president of Gannett New Media Group and chairman of USA Today Sky Radio, resigned from the corporation in January 1995 after the SEC investigation was announced.
Ignoring warnings from the thrift's attorneys against trading inside information, Mr. Farrell in March 1993 told three friends that $11.9 billion-asset First Empire had submitted a formal offer for Rochester Community Savings, according to court documents.
On Mr. Farrell's advice, his three friends bought 44,500 shares of Rochester Community's stock just before the thrift announced the talks. Mr. Farrell even advised two of them to buy in small blocks to avoid arousing suspicion.
On May 24, 1993, Mr. Farrell realized the talks were going to collapse and told his friends to sell before an announcement was made, according to court documents.
In exchange for the tips, Mr. Farrell had negotiated a payment of $20,000 to $30,000 out of one associate's profits, according to court papers, which did not identify the friend. He got $6,000 before the scheme was uncovered, according to the documents.
To cover his tracks after he learned of the SEC investigation, Mr. Farrell gave the same friend a copy of the thrift's most recent quarterly report, which included information about its plans to cut nonperforming assets, according to the papers.
Mr. Farrell told the friend the information could be used to justify the trades, according to court documents.
He also admitted giving $194,000 to one of the other unidentified friends to buy stock on Mr. Farrell's behalf.