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The Securities and Exchange Commission has charged Roy Cook, a former board member of Tallgrass Energy LP, and four of his friends with insider trading for trading on material nonpublic information in advance of a public announcement that Blackstone Infrastructure Partners had offered to acquire Tallgrass and take it private. The five defendants agreed to settlements that include more than $2.2 million in disgorgement, prejudgment interest, and civil penalties.

According to the SEC’s complaint, in July 2019, Cook learned that Blackstone, which held 44% of Tallgrass’ shares at the time, was planning to acquire the remaining publicly traded Tallgrass shares. Shortly thereafter, Cook alerted his friends, Jeffrey Natrop, Peter Renner, James Rudolph, and Peter Williams – all of whom made investments in Tallgrass prior to the public announcement of Blackstone’s offer on August 27, 2019.

Jeffrey Natrop and Peter Renner purchased Tallgrass call options, which resulted in illicit profits of $43,862 and $13,520. James Rudolph purchased Tallgrass stock resulting in illicit profits of $31,035. Peter Williams purchased Tallgrass call options, which resulted in $463,000 in illicit profits. Williams also purchased Tallgrass stock in a trust account owned by Roy Cook over which Williams had trading authority, resulting in an illegal windfall of $88,800.

Following Blackrock’s acquisition announcement Tallgrass’ stock rose by 36%, with Roy Cook serving as chair of the Tallgrass Conflicts Committee, which was tasked with assessing Blackstone’s offer and negotiating the final terms of the transaction. According to Mark Cave, Associate Director of the SEC’s Division of Enforcement, “Roy Cook took advantage of his position as a Tallgrass director to repeatedly enrich himself and his friends.”

The SEC complaint, filed in U.S. District Court for the Eastern District of Wisconsin, charged the defendants with violating the antifraud provisions of the federal securities laws and charges Cook with failing to file required reports concerning Tallgrass securities transactions by family trusts. Cook agreed to pay a civil penalty of $801,742 and to disgorge his illicit trading profits, without admitting or denying the allegations in the SEC’s complaint. He also agreed to an officer-and-director bar. Each of the other four defendants agreed to pay a civil penalty equal to the amount of their allegedly illicit trading profits and disgorge their illicit trading profits, without admitting or denying the SEC’s allegations.