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Buyout Pro Agrees To Fine, Lifetime Ban In Insider Trading Scandal

  • Massoud charged with insider trading
  • SEC scores $1.4 million fine
  • Compass Group founder faces lifetime ban

Massoud has paid a $1.4 million fine to settle the charges, and is barred from working in the securities industry or serving as an officer or director of a public company, according to a Nov. 30 SEC press release.

The SEC alleged that Massoud traded ahead of the sale of Patriot Capital Funding Group, another private equity firm, on insider information that he had obtained in a data room where bidders could research the firm’s financial health. Patriot Capital had initiated a private bidding process in 2009 as it looked at a possible sale, according to the SEC.

To enter the data room, Compass had to agree to a confidentiality agreement that forbade its executives from buying the company’s stock. In its announcement, the SEC discussed e-mails from Massoud in which he discussed the process with other Compass employees.

“Nonetheless, Massoud purchased shares soon after Compass Group gained access to the confidential information, and he bought even more stock after he learned that Compass Group’s bid was what he described was ‘waaaay off’ compared to the bids from other companies,” officials from the SEC wrote in their announcement, which added that Massoud pocketed $676,000 in illegal profits from the trades.

Compass’s publicly traded subsidiary Compass Diversified Holdings (CODI) appointed a new CEO, Alan Offenberg, according to a press release issued on Nov. 30, the same day as the SEC’s announcement. The Compass announcement notes that Massoud had been on a leave of absence from his role as CEO since February 2011. It also mentions the settlement with the SEC, and says that its investigation concerned “personal trading matters from 2009, unrelated to CODI, its operations and securities,” which seems at odds with the SEC’s account.

Compass Diversified seeks control-stake buyouts in small to mid-market companies that generate a minimum of $8 million in a variety of industries. Its portfolio includes CamelBak Products LLC, a maker of personal hydration gear; and Tridien Medical Inc., a manufacturer of medical devices for the acute-care, long-term care and home health care markets. Founded in 1998 as a private equity firm with one backer, the firm went public in 2006.

“We don’t see this as a disadvantage, but we are subject to the full transparency requirements of a public company,” Massoud told Buyouts in a 2010 interview, when asked about any disadvantages in being a public company. “So we are Sarbanes-Oxley compliant, we have an outside, independent board, and we do our financials quarterly. All the transparency has actually been an advantage in certain ways.”

Executives with Compass Group Management were not immediately available. Massoud could not be reached for comment.

According to a 2006 Buyouts story on Massoud, he started his career at McKinsey & Co.’s Los Angeles and Mexico City Offices before departing for Harvard Business School in 2006. In 1993, he joined Los Angeles-based Colony Capital.In 1998, he helped start Compass Group, which invested money on behalf of the TK Foundation, a philanthropic organization started by Teekay Shipping founder J. Torben Karlshoej, according to that story.