Insider Trading Reveals Director Made Nearly 600% Return in Under 90 Days

I was doing some simple stock research when I came across a small company called Dynacq Healthcare (DYII). The company runs four acute care hospitals that provide specialized surgeries in Texas and Louisiana.

Dynacq’s Director, James Gerace, started accumulated shares when the stock was at a measily $1.40 in mid April, 2007. James knew some big news was around the corner though because on July 16th the stock went from $2.46 to $7.87, and James sold all of his shares two days later at $8.26 for nearly a 600% gain.

Reported Purchases

If you take a look at the insider records to the left which I pulled from yahoo finance (click to view image, click again to zoom) you will find the following purchases made by James Gerace from April 19th through May 3rd 2007:

• April 19th, 2007 - 409 shares @ $1.38 per share
• April 23rd, 2007 - 930 shares @ $1.40 per share
• April 24th, 2007 - 4731 shares @ $1.41 - $1.42 per share
• April 25th, 2007 - 700 shares @ $1.43 - $1.47 per share
• May 1st, 2007 - 900 shares @ $1.37 per share
• May 2nd, 2007 - 500 shares @ $1.38 per share
• May 3rd, 2007 - 1830 shares @ $1.45 per share

Total shares purchased during this time was 10,000 at a total cost to James of $14,151.

Now take a look at what happened to the stock once the news was released that the company posted a strong 3rd quarter profit on July 16th, 2007:

James sold all 10,000 of his shares on July 18th, 2007 at $8.26 for a value of $82,600. Less his cost of $14,151 James made $68,449 in less than 90 days.

Now I am not one to judge James and say there was something illegal going on here. Everything is publicly available and really it is up for you to decide what you think. But it can definitely be said he knew the company was going to post a solid quarter and had to know the stock was going to jump. The icing on the cake is that James sold all 10,000 of his shares two days after the price jump and walked away with over $68,000 in profits.

As of the close today, Dynacq Healthcare (DYII) is trading at $7.29.

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Share Your Knowledge »

Comment by The Financial Blogger

2007-08-14 06:40:49

Maybe we should email him so he let us know next time! I wish I would buy such stocks one day!

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Comment by Blain

2007-08-14 10:44:08

ya really

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Comment by Nabloid.com

2007-08-14 11:09:09

Thanks for pointing that one out. If you really want to see PURE fraud go check out HAO (on the TSX) and HSEV (on the OTC). The CEO (and his girlfriend) pump up the shares with press releases and then after it has risen, sell and dump a lot of shares. They do this over and over with the CEO pratically day trading millions of the shares if you check the history! The funniest part is that HAO always goes into a joint-venture with another company, for which the CEO is a consultant… so he gets paid consultant fees for making a joint venture instead of keeping the new project 100% within HAO! Talk about personal gain…. Oh, and both companies release similiar press releases. It’s absolutely hilarious to see it all and put it altogether! Especially to see the CEO’s holding company does trading… buying cheap and selling high, over and over again for both companies… he even uses his girlfriends name too! It’s quite amusing. Read the very 2 last posts on this forum: http://www.hotstockmarket.com/forums/canadian-stocks/29248-habenero-oil-gas-hao-v-18.html Heck, read all the posts on this scam, its all there in black in white. Yet, it continues. I really believe things like this should come to the forefront and legal action taken. Thanks again for the post!

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Comment by SteamStreet Jon

2007-08-14 13:06:31

Wow, that’s a great find. I have to imagine that this sort of activity creates an alert in the SEC fraud system. At the very least it seems like cause for investigation. I just can’t believe the guy would sell all 10,000 shares at once. Forgot the fraud angle… what kind of message does that send to shareholders? Why not have a sell program to sell 2500 per month or something like that? At least you could justify it as a ‘program sell’. Fraud or not, clearly a stock to stay far away from.

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Comment by The Financial Blogger

2007-08-14 14:47:32

Hey Nabloid, So you are saying that this guy is just doing it over and over again and nobody does anything about it? How can we find out about these things on the internet without having some legal actions taken against those individuals? Any legal development in this story or the guy is just building a great “pension plan”?

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Comment by Nabloid.com

2007-08-15 12:02:26

I’m not entirely sure why the authorities haven’t done anything about it. Read through the forum and you can see he buys millions of shares when its cheap and through stock options and then sells them when it gets higher… and does it over and over. Then to top it off he does consulting with another company and gives away half of each deal for more stock options in the other company. Then both companies release the same press releases and whatnot because his girlfriend is in charge of IR I believe. It’s a really odd circle of shady stuff… It has to be in the grey areas of the law if it isn’t illegal outright. I do know that the CEO’s holding company has been named in another SEC investigation in the past. I think the SEC and EDGAR need to be alerted.

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Comment by Michael Fultz

2007-08-15 00:27:14

I can’t believe that they would let him get away with something like this..

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Comment by Garry

2007-08-15 22:22:49

I have tracked DYII for over a year now. There is no such person that I know of named James Gerace….. Even if there was such a “Director”; wouldn’t this be a perfectly legal trade?? If he is on the inside, what is he supposed to do?? At least he kept it to himself. REGARDLESS, I have MANY stocks I invest in; if I have a stock that goes from 2 bucks per share to 8 bucks, I AM SELLING ALL OF IT!!! That’s just my style. You may want to stay on board and enjoy the ride up more. Pigs get fat and Hogs get slaughtered. Whoever this Gerace is; sounds like a pig to me. Good Day

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