I. Joseph Massoud, a private equity titan from Westport who was riding high at the age of 44, has taken a fall, agreeing to pay $1.4 million and accept a lifetime ban from the securities business to settle allegations of insider trading.
Massoud, who co-founded the private equity firm Compass Group in Westport in 1998, neither admitted nor denied any wrongdoing in settling the Securities and Exchange Commission's allegations Friday. If the settlement is approved by a federal judge, he will also have to pay back double the amount of profits he made on the questionable trades.
"Mr. Massoud is pleased to have been able to resolve this personal trading matter," said his lawyer, Robert Annello. "He has helped build significant value for shareholders and investors over the last 15 years and looks forward to future endeavors." The SEC charged Massoud with trading on inside information he received about Stamford-based Patriot Capital in 2009.
Massoud got involved in the Patriot Capital deal because he was invited into the bidding for the firm. That made sense, as Massoud actually created Patriot Capital, a Westport-based investment fund, in 2002. He took it public in 2005, but the firm started to struggle with debt in 2009 and was looking for capital through a bidding process.
According to court documents filed by the SEC, Massoud's company agreed to a confidentiality pledge that also banned it and its employees from trading in Patriot Capital stock. But the SEC said Massoud failed to honor the agreement when he learned other bids were much higher than his.
Citing Compass Group emails, the SEC said Massoud bought 322,216 shares in Patriot Capital and made a profit of $676,000 when New York-based Prospect Capital announced it had acquired Patriot for $197 million that year.
Kevin Kelcourse, the SEC Boston office's assistant director, said the agency is focused on insider trading violations.
"This is an important part of trying to level the playing field," he said Friday.
In recent years, the SEC and the Justice Department have brought several high-profile cases of insider trading that have touched Connecticut, including the Galleon case, of which Westport's Raj Rajaratnam was the center. More recently, the Justice Department moved to charge a former SAC Capital trader with insider trading.
All those cases were much larger than the one involving Massoud.
But Kelcourse said the SEC felt Massoud, who is not only an investment adviser but has also sat on boards of directors and been a chief executive, required a lifetime ban from the securities industry for his actions.
Massoud might be well-known in the private equity community, but in the Westport area he might better be recognized by his work with Big Brothers and Big Sisters of Southwestern Connecticut and other charities.
"He played Santa for us last year and had a blast," said Ellen Tracy, executive director of Big Brothers and Big Sisters.
Tracy has known Massoud for more than a decade and invited him to join the group's board.
She said she doesn't have too much knowledge about SEC matters, but know's Massoud as a good man and a generous spirit.
His involvement with the organization began in 1997, when he volunteered to be a big brother for a boy from Norwalk. The two have remained friends, she said.
Tracy doesn't expect this will prevent Massoud from continuing to give back to the community. She said Massoud met his wife while the two were volunteering as mentors while attending Harvard business school.
"He's a very highly regarded man," she said.
Massoud will be able to continue to trade stock for himself, but the ban will cut short a promising business career.
In addition to costing him his partnership in the Compass Group, Massoud must resign as CEO and director of Compass Diversified Holdings, a publicly traded company that's been called a Baby Berkshire Hathaway and a Poor Man's Berkshire Hathaway by the financial media.
Compass Holdings, which Massoud's Compass Group founded, owns Camelbak, the popular drink system maker for hikers; Fox Factory, a maker of shock absorbers, and Liberty Safe. The company reported net income of $6.4 million from more than $241 million in sales during the most recent quarter.
In February 2011, Compass Holdings announced Massoud was taking a temporary leave of absence to deal with an informal regulatory manner.
On Friday, Compass Holdings issued a statement accepting Massoud's resignation.
"It is with deep regret that the Board accepts Mr. Massoud's resignation," said Sean Day, Compass Holdings chairman. "We would like to thank Mr. Massoud for his service. He was instrumental in founding (Compass Holdings) in 2006, and gave us five years of strong and successful leadership. We wish him the very best in his future endeavors." Alan Offenberg, who was the interim CEO was elected CEO by the board. Elias Sabo, a co-founder of Compass Group, will become the new managing partner.