On 11 December 2024, the United States Securities and Exchange Commission filed a complaint against Ken Peterman, the former Chief Executive Officer, chair of the Board, and president of Comtech Telecommunications Corp., in the United States District Court for the Eastern District of New York. The complaint alleges that Peterman engaged in insider trading by selling Comtech stock while in possession of material non-public information about the company’s poor financial performance for the second quarter of its fiscal year 2024 (Q2 FY24). These actions violated United States federal securities laws and breached his fiduciary obligations.
The complaint centres on Peterman’s sale of Comtech shares prior to the public disclosure of financial losses for Q2 FY24, which resulted in a 25.4% drop in Comtech’s stock price. By acting on confidential information obtained through his position at Comtech, Peterman avoided approximately $12,445 in losses and attempted to avoid further losses by selling additional shares. The US SEC argues that his actions constitute a clear violation of insider trading regulations and corporate governance standards.
Ken Peterman served as Comtech’s CEO, chair of the Board, and president from August 2022 until March 2024. In these roles, he had direct access to confidential company information and a fiduciary responsibility to uphold company policies. On 4 March 2024, Peterman attended a Board Audit Committee meeting where he was informed of Comtech’s negative earnings for Q2 FY24, including a 12% decline in net sales, from $151.9 million to $134.2 million, and a drop in adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) from $18.4 million to $15.1 million. These results were not yet public. At the time, Comtech had two trading blackouts in effect. The first, a routine quarterly blackout, barred executives from trading until two days after the public release of earnings results. The second, a special blackout tied to confidential projects, had been in effect since October 2023. Despite being aware of these restrictions, Peterman sought to capitalise on insider knowledge to avoid significant losses.
On the evening of 12 March 2024, Peterman was terminated for cause by Comtech’s Board following an internal investigation into personal misconduct, which included failure to disclose a relationship with a subordinate and directing the subordinate to complete his mandatory sexual harassment training on his behalf. Hours after his dismissal, Peterman attempted to liquidate 8,241 shares of Comtech stock held in his Compensation Account. He also sought to sell an additional 49,400 shares from another account, circumventing Comtech’s internal controls and violating blackout period policies. On 13 March 2024, Comtech publicly announced Peterman’s termination. By 9:35 a.m., his Compensation Account shares were sold for $40,454.54. Days later, on 18 March 2024, Comtech disclosed its Q2 FY24 financial results, missing analyst expectations and causing its stock price to plummet by 25.4%. Peterman’s premature sale of shares helped him avoid losses of approximately $12,445 and potentially much more had his other sale attempt succeeded.
The United States Securities and Exchange Commission alleges that Ken Peterman violated Section 10(b) of the United States Securities Exchange Act of 1934 and United States Rule 10b-5. By using material non-public information to sell shares, he knowingly breached federal securities laws designed to ensure market fairness and transparency. Additionally, Peterman contravened Comtech’s internal Standards of Business Conduct, which explicitly prohibited trading during blackout periods or while in possession of non-public information. His actions also constituted a breach of fiduciary duty, given his responsibility to act in the best interests of the company and its shareholders.
The United States Securities and Exchange Commission is seeking multiple penalties against Ken Peterman. First, it is requesting a permanent injunction to bar Peterman from engaging in any future violations of United States federal securities laws. Second, the US SEC is seeking disgorgement of all profits obtained from the trades, amounting to $40,454.54, along with prejudgment interest. Third, the Commission has requested the imposition of significant civil monetary penalties under Section 21A of the United States Securities Exchange Act. Fourth, the US SEC seeks a lifetime prohibition preventing Peterman from serving as an officer or director of any publicly traded company. Finally, the Commission is asking for any further relief that the court may deem necessary to ensure justice and deter future misconduct.
(Source: https://www.sec.gov/newsroom/press-releases/2024-195, https://www.sec.gov/files/litigation/complaints/2024/comp-pr2024-195.pdf)
