It's the kind of publicity nightmare that investor relations firm Lippert/Heilshorn would normally be helping a client to navigate.
One of its employees, Michael Lucarelli, has been arrested and charged with 13 counts of insider trading, according to a statement from the FBI and the Manhattan U.S. attorney's office. According to the allegations, Lucarelli reportedly traded "using inside information from unwitting clients."
The activities allegedly provided Lucarelli with an illegal windfall of more than $538,000, according to the complaint. He might end up paying much more back to the government, given that each securities fraud charge carries a maximum fine of $5 million, as well as a maximum sentence of 20 years.
Keith Lippert, a founding partner of Lippert/Heilshorn, told CBS MoneyWatch his firm had cooperated with the FBI after it was made aware of the investigation last month. The company continued to employ Lucarelli until his arrest on Tuesday because the FBI was concerned that letting him go would tip him off, Lippert said.
"This is unfortunate and very disconcerting and very sad that someone would go to this extreme," Lippert said. He called Lucarelli a "rogue" employee who had to "work hard" to find the information he allegedly traded on, since his job involved setting up non-deal "road shows" for clients who wanted to increase their visibility with investors.
The FBI said it searched Lucarelli's office, which was done without his knowledge, and found a locked briefcase that included a draft press release for client Trex Company's (TREX) upbeat second-quarter results. The day after the search, Lucarelli allegedly started buying shares of Trex, which makes wood composites, and then sold almost all the stock on Aug. 4, after the earnings results were released. The trade allegedly gave Lucarelli a profit of $90,000.
"As alleged, and despite the well-known parade of convicted insider trading perpetrators over the past several years, Michael Lucarelli was not deterred and violated both his company's policies and his responsibility to its clients by trading on material nonpublic information for his personal financial gain," Manhattan U.S. attorney Preet Bharara said in a statement.
Lucarelli allegedly set up brokerage accounts to make the illegal trades, which FBI assistant director-in-charge George Venizelos said "violated the responsibility he had to both company and clients."
Lippert said his company is reaching out to clients.
"We have put forth an aggressive campaign to call our clients to explain to them that we had a rogue employee, that we always prided ourselves on our integrity and honesty," he said, adding that the company is also looking at its own internal procedures. "It behooves us to take a look at all of our protocols to see how we can improve this."