SEC v. Chad C. McGinnis; and Sergey Pugach, District of Connecticut (Jan. 1, 2013) — Complaint

\ 
UNITED STATES DISTRICT COURT 
DISTRICT OF CONNECTICUT 
zun JUL 2~ Arlll 33 

SECURITIES AND EXCHANGE 
COMMISSION, 
Plaintiff, 
V. 
CHAD C. McGfNNIS and 
SERGEY PUGACH, 
Defendants, and 
BELLA PUGACH, 
Relief Defendant. 
) 
) 
) 
) 
) 
) 
) 
) 
) 
) 
) 
) 
) 
) 
) 
) 
U.S. D\STR! CT COURT 
NEW HAYEN, CT. 
Civil Action No. 
.? . . /.?-c v . /C/~7 ,4-J/c.. 
COMPLAINT 
JURY TRIAL DEMANDED 
FILED UNDER SEAL 
Plaintiff Securities and Exchange Commission (" Commission"), for its Complaint against 
Defendants Chad C. McGinnis ("McGinnis") and Sergey Pugach (" Pugach") (collectively 
"Defendants"), and Re
liefDefendant Bella Pugach (" B. Pugach"), alleges as follows: 
SUMMARY 
1. This case involves a nefarious insider-trading scheme executed by Defendants. 
McGinnis used his position as a corporate insider at Green Mountain Coffee Roasters, Inc. 
("GMCR") to obtain material , nonpublic  information ahead 
ofearnings announcements. Using 
this information, McGinnis purchased GMCR securitie
s-usually out-of-the-money options ­
shortly before the earnings announcements were made public, then sold them after the 
announcements. McGinnis also tipped his long-time fr iend and business associate 
Pugach with 

. ' 
this same information. Pugach in turn made similar trades. Together, McGinnis and Pugach 
profited by we
ll over $7 million between 20 10 and 20 13 from the se illegal trades. 
2. Because 
oftheir inside information, McGinnis and Pugach ' s trades were 
consistently and exceptionally successful. For 12 out 
of 13 quarters ofearnings announcements, 
they made profitable trades based on 
high-risk bets of immediate and sharp stock price 
movement. They communicated frequentl y aro und earnings 
announcements-but infreq uently 
otherwise-and traded in both of their brokerage accounts from the same  location. McGinnis 
and Pugach exploited McGinnis' s access to mate
rial, nonpublic information to conduct their 
insider-trading scheme to the detriment 
of GMCR and its shareholders. 
NATURE OF 
THE PROCEEDINGS AND RELIEF SOUGHT 
3. The Commission brings thi s action pursuant to the  authority conferred upon it  by 
Section 2 1(d) 
of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. 78u(d)]. The 
Commission seeks preliminary and permanent injunctions  against Defendants, en
joining them 
from engaging the transactions, acts, 
practices and courses of business alleged in this Complaint, 
disgorgement 
of all ill-gotten  gains  from the unl awfu l  insider  trading activity set  forth in this 
Complai nt, together wi th prejudgment interest, and civ
il penalties pursuant to Section 21A of the 
Exchange Act [15 U.S.C.  78u-1]. The  Commission seeks any 
other  relief that the Court may 
deem appropriate pursuant to Section 21(d)(5) 
of the Exchange Act [1 5 U.S.C. 78u(d)(5)]. 
JURISDICTION AND VENUE 
4. This  Court h
as jurisdiction over thi s action pursuant to  Sections 2l(d), 2l(e) and 
27 o
fthe Exchange Act [15 U.S.C. 78u(d), 78u(e) and 78aa]. 
5. Venue lies 
in this  Court pursuant to Section 2l(d), 2 1A and 27 of the  Exchange 
Act 
[1 5  U.S.C. 78u(d), 78u-l and 78aa]. Certain of the  acts,  practices  and transactions  and 
2 


courses of business alleged in thi s  Co mplaint occurred within the District of Connecticut and 
elsewhere, and were effected, directly or indirectly,  by making use 
of means  or instrumentalities 
of transportation or communication in interstate commerce, or the mails, or the facilities of a 
national securities exchange. During the  time 
of the  conduct at issue,  shares of GMCR were 
traded 
on the NASDAQ stock market. Defendant Pugach resi des in Connecticut. 
DEFENDANTS AND RELIEF DEFENDANT 
6. Chad C. McGinnis:  McGinnis, 35 , lives in Morrisvi lle,  Vermont and is  a 
System Administrator for GMCR. McGinnis traded ahead 
of I 0 GMCR earnings releases and 
has made we
ll over $2 million in profits on those trades. McGinnis and Pugach are friends and 
business associates who both attended Fairfield University and previously worked together at 
another company in Connecticut. 
7. Sergey Pugach:  Pugach, 34, lives in Hamden, Connecticut and is an Application 
Architect with Aetna Inc. in Hartford , Connecticut. Pugach traded ahead 
of 12 GMCR earnings 
releases and has made well over $5 million in profits on those trades. 
8. Bella Pugach: B. Pugac h, 57, lives in Brooklyn, New York and is  a Home 
Attendant for Home Attendant Services 
of Hyde Park.  B. Pugach is Pugach's mother. Trades 
were made in h
er account ahead of the May 2012 GMCR earnings announcement making almost 
$40,000 in profit. 
OTHER RELEVANT ENTITY 
9. Green Mountain Coffee Roasters, Inc.  GMCR is a Delaware corporation with 
is headquarters 
in Waterbury, Vermont. GMCR produces and sells coffees, teas and other 
specialty beverages.  Its common stock 
is listed on the NASDAQ exchange under the symbol 
"GMCR." 

FA CTS 

McGinnis had access to material,  nonpublic information at GMCR 

10. At all times relevant to this Co mplaint,  McGinnis has worked in GMCR ' s 
Informa
tion Science and Technology Department and was in charge ofadmini strating GMCR ' s 
Microsoft SharePoint software, a document and fil e ma
nagement system that all ows for a gro up 
of employees to work collaboratively on a single set ofdocuments. The SharePoint software 
includes documents used to create the content for GMCR
's periodic filings w ith the SEC, which 
include earnings information. By virtue of his 
pos iti on as System Adm inistrator for the 
SharePoint 
software, McGinnis had access to material, nonpublic informati on about GMCR 's 
upcoming earnings announcements days before the information was released to the public. 
11. Additionally, 
by virtue of his rol e as Sys tem Admini strator, McGinni s had access 
to other empl oyee
s' e-mail accounts; and McGinnis had access to the informatio n on GMCR 's 
Investor Relations shared folder on GMCR 's server, where the drafts of pending press releases 
(including earnings releases) 
are stored.  Both of these sources also provid ed  McGinnis with 
access to material, nonpublic info rmation abo ut GMCR' s upcoming earn
ings announcements 
days before the information was released to  the pub
lic. 
GMCR maintained an insider trading policv, which McGinnis received 
12. GMCR maintained an Insider Trading Policy (the " Policy") at all  times during 
McGinnis' s emp 
loyment. The Policy applies to "all empl oyees" with respect to " the trad ing of 
the Company's securities, as well  as securities not issued by the Company but that are related to 
o r bound with the Company's securities (such as exc hange traded options) . .. " The Policy 
precludes employees and others fro m trading on the  bas is 
ofmaterial, no npubl ic information as 
well  as tipping others when an employee is aware 
of material, non public informatio n.  " Material 
4 


information"  is defined to include " [p ]rej ections of future earnings or losses or other earnings 
gu idance." 	 McGinnis was provided with a copy 
of the Policy. 
McGinnis and Pugach have longstanding and numerous connections 
13. McGinnis and Pugach have numerous connections. Both Jived in the New Haven, 
Connecticut area from 2005 to 2007. During that time, both attended Fairfield University. Both 
also worked at the company Unilever in Trumbull , Connecticut in 2005 and 2006, McGinnis as a 
" Desktop Architect" and Pugach as a " Programmer." McGinnis and Pugach are friends. 
McGinnis and Pugach regularly communicated around their illegal trades 
and sometimes traded from the same location 
14. McGinnis and Pugach communicated frequently in the time period around 
GMCR's earnings announcements, and infrequently otherwise. Phone records obtained by the 
Commission indicate that McGinnis and Pugach communicated via phone call 
or text message 
116 times between January 24
,2010 and March 1, 2013. Ofthose communications, 90 occurred 
within two days (25 before and 65 after) 
ofthe public release ofa GMCR earnings 
announcement. Beginning in July 2011 , McGinnis and Pugach also communicated using the 
phone numbers 
of McGinnis's spouse and Pugach's spouse. Of the communications between 
McGinnis and Pugach's spou
se's phone, 18 of22 occurred in the week prior to GMCR's 
earnings announcements. In addition, there were at least another 137 communications -  by 
phone call or text mes
sage-between McGinnis's spouse's phone and Pugach' s spouse's phone 
in the week prior to , or the day 
of, GMCR' s earnings anno uncements. 
15. Brokerage accounts for both McGinnis and Pugach we re accessed from the same 
physical location for the purpose ofplacing trades according to brokerage records obtained by 
the Commission. There are two IP addresses from which brokerage accounts belonging to 
McGinnis, Pugach and 
B. Pugach we re accessed on the same day. This indicates that these 
5 


accounts were accessed from the same inte rnet connection and, therefore, the same physical 
location. McGinnis and Pugach made trades from these IP addresses,  both assigned to 
Morrisville, Vermont, where McGinnis resides, around 
GMCR' s February 2, 2012, May 2, 2012 
(B. Pugach also traded from the same IP address 
on this date), August  1, 2012, November 27, 
2012, and February 6, 2013 earnings announcements. 
16. For example and by 
way of visualization, Defendants'  communications and 
illegal trades surrounding 
GMCR's May 2, 201 2 earnings announcement proceeded as follows, 
with McGinnis and Pugach communicating before earnings releases, trading from the same 
location, and profiting substantially based on material, nonpublic information: 
:------~-· .. ~---~
5/ 1 Tuesday 5/2 Post-Market Close 
McGinnis sells 
100 opuon calls McGinnis  sells 700 put options. 
avoidinQ ios s<os o f  S20 K and  purchas<oS 30 K shar.,• 
McG1nnis • 
N.,t Profit of 5839 K 
McGinnis ~~:~a"{,..,toptions / 
I
J 
Cal s 
cal{ \ LOQS into 

/ LOQS in to TOA account 

I 
TDAacc\ount / 
J!Y 
~ 5/2 Aft<or th., Closing e.,n 
4/29 Sunday 2 ~xts ~tween 
\,!!£;~ GMCR announc.,s 2nd Quart<or EamiOQs 
McGinn1s· Spouse and GMCR stock d<ocr.,as.,s 48% May 3 Thlxsday 
Pu<;iacn·s Spou--.-.. 
Sam., IP Addr.,ss 4  calls ~~Neen 
-
5/1 Tu.,sday 2 calls 
I ~ d  PuQach McG~si
~~"'""" McG1nns and 

Pu<;iacn·s ~ 

5/2 W<odn<osday 

19 t.,xts b<o ~Neen 

""' LOQS Illto LOQS into Cal • 
McGinnis· Spouse and 
PuQacn·s Spou--.-.. 
car,z_ ;m•~• m•~~ = I" 
... 
~"n.. ~~ · · . <'.':!::..
~. -------~ 
4/30 Monday • 5/2 w.,a,.,sday 5/2 Post-M.;ket Close 
Pu~:~ach Sells 700 call options, and PuQach sells 1150 put 
sells 
2 10 0+ shar.,s. opUons, .,x<oros.,s 700 
Pul)ach • N.,t Profit ofapprox 52 M 
purchas<od 1850 put opbons, and and purchas<os 70 K shar.,s 
Bdla PuQach • N.,t Profi t  o f  539 K 
Bella
PuQach shorts 2000 shar.,s 
McGinnis tipped Pugach with material, nonpublic information 
17. McGinnis tipped  Pugach with mate
rial, nonpublic information via 
communications prior to 
GMCR's earnings announce ments.  McGinnis knew, recklessly 
disregarded, or should have  known that he owed a fiduciary duty or similar obligation oftrust 
and confide nce to 
GMCR and its shareholders to keep the mate rial, nonpublic information 
6 


confidential. Pugach knew, recklessly  di sregarded, or should have known that information 
tipped by 
McGinnis was materia l,  nonpublic information disclosed in violation ofa relationship 
oftrust between McGinnis and GMCR or GMCR' s s hareholders,  given Defendants '  relationship 
and repeated 
communications.  A t a ll  times Pugac h knew, recklessly disre garded , or sh ould have 
known 
that McGinnis was a corporate insider at GMCR. McGinnis benefited from tipping 
Pugach by, among other things, conferring a gift ofconfidential information on his friend Pugach 
and receiving  a reputational benefit. Thus, by engaging  in the
ir insider-trading  scheme, 
McGinnis and 
Pugach acted with scienter. 
McGinnis and Pugach illegally traded around GMCR's earnings announcements 
18. With one exception, McGinnis, Pugach, and/or B. Pugach have s uccessfully 
traded in 
GMCR stock around each of its  earnings announcements since the Jul y 28, 2010 
earnings announcement. 
Put simply, they have correctly predicted the reaction ofGMCR's stock 
price to twelve 
out ofthe last thirteen quarterly earnings announcements. Most ofthe options 
they purchased 
were "out of the money"  at the time of purchase, representing a bold, collective 
bet 
ofhundreds ofthousands in option premiums tha t GMCR' s stock price would move sharply 
to cover their bet. 
As a result of all ofthese trades, McGinnis, Pugach, and B. Pugach have 
illegally 
made well over $7 million. The illegal trades were as follows: 
July  28, 20 10 Earnings Announcement 
• 	On July 28 , 2010, 
GMCR announced it quarterly  earnings. The fo llowing  trading day, 
GMCR' s stock price increased by 9.38%. 
• 	Prior to the announcement, Pugach purchased 9,
000 shares ofGMCR. 
• 	Following the announcement, Pugach sold the shares fo r a profit 
ofat least $25,610 . 
7 


November 19,2010 Restatement ofFinancials 
• 	On November 19, 2010, 
GMCR announced a res tatement of its earnings for the past four 
years.  The following trading day, GMCR's stock price increased by 18.24%. 
• 	Prior to the announcement, McGinnis purchased 3,600 shares 
of GMCR. Pugach purchased 
12,000 shares 
ofGMCR and 200 out-of-the-money GMCR call options. 
• 	Followi ng the announcement, McGinnis so ld the shares for a profit 
of at least $17,844. 
Pugach so ld the shares and call options for a profit of at least $131,457. 

December 9. 2010 Earnings Announcement 

• 	
On December 9, 2010, GMCR announced its year-end earnings. The following trading day, 
GMCR
's stock price decreased by 9.64%. 
• 	Prior to the announcement, Pugach sold 1,400 
GMCR call options that he had previously 
purchased for a profit of at least $95,748. 
• 	Following the announcement, the options become almost worthless. 
February 2. 2011 Earnings Announcement 
• 	On February 2, 2011, 
GMCR announced its quarterly earnings. The following trading day, 
GMCR' s stock price increased by  14.62%. 
• 	Prior to the announcement, McGinnis purchased  100 out-of-the-money 
GMCR call options. 
Pugach purchased 4,000 shares 
of GMCR and 209 out-of-the-money GMCR call options. 
• 	Following the announcement, McGinnis sold the options for a profit 
of at least $57,266. 
Pugach so ld the shares and call options for a profi t ofat least $79,934. 

May 3. 2011 Earnings Announcement 

• 	On May 3, 20 
11 , GMCR announced it quarterly earnings. The following trading day, 
GMCR
's stock price increased  by 18.59%. 
8 


• On April 30, 20 11 , Pugach and McGinnis spoke via their cell phones on two occasions. 
• 	Prior to the anno uncement, McGinnis purchased 125 GMCR call options (most ifnot all 
were out 
ofthe money) and sold 100 put options. Pugach purchased 200 out-of-the-money 
GMCR call options and so ld 280 put options. 
• 	Following the announcement, McGinnis so 
ld the call options and most of the put options 
expired out 
ofthe money, resulting in a profit of at least $70,048. Pugach sold his call 
options and most 
ofthe put options expired out ofthe money, resul ting in profit of at least 
$113,884. 
Julv 27. 2011 Earnings Announcement 
• 	On July 
27,2011 , GMCR announced it quarterly earnings. The following trading day, 
GMCR's stock price increased by 16.41%. 
• 	There were seven text messages between the phones 
ofMcGinnis's spouse and Pugach's 
spouse 
on July 21,2011. 
• 	Prior to the announcement, McGinnis purchased 150 GMCR call options (most were out of 
the money). Pugach purchased 500 GMCR call options (most were out of the money). 
• 	Following the announcement, McGinnis sold the ca
ll options for a profit ofat least 
$156,385.62. Pugach sold the call options he had purchased for a profit 
ofat least 
$345,204.08. 
November 
9. 2011 Earnings Announcement 
• 	On November 9, 2011, 
GMCR announced it quarterly and year-end earnings. The following 
trading day, GMCR' s stock price decreased by 38.99%. 
• 	Prior to the announcement, Pugach shorted 6,000 shares 
of GMCR and purchased 100 out­
of-the-money 
GMCR put options. 
9 


• 	Following the announcement, Pugach covered his short position and sold the GMCR put 
options for a profit 
of at least $305,042. 

February 1. 2012 Earnings Announcement 

• 	On February 1, 20 12, 
GMCR announced it quarterly earnings. The following trading day 
GMCR' s stock price increased by 23.85%. 
• 	Between January 
26, 2012 and February 1, 20 12, there were 49 phone communications 
between the  phone numbers assigned to the spouses 
of Pugach and McGinnis, with 25 of 
those occurring on the day of the announcement. 
• 	While 
B. Pugach did not trade around this announcement, both she and McGinnis logged into 
their trading accounts on February 1, 2
01 2 from the same IP address. In addition, Pugach 
made trades from that same IP address in late January. 
• 	Prior to the rumouncement, 
McGinni s purchased 50 out-of-the-money GMCR call options. 
Pugach purchased 6,000 shares 
of GMCR stock and  1,3 85 GMCR call options (most were 
out 
of the money). 
• 	Foll
owing the announcement, McGinn is so ld the call  options for a profit ofat least $17,584. 
Pugach sold his shares and call  options for a protit of at least $1,068,783. 

May 2. 20 12 Earnin gs Announcement 

• 	On May 2, 20 12, 
GMCR announced it quarterly earnings.  The fo llowing trading day, 
GMCR' s stock price decreased  by 47.76%. 
• 	Prior 
to the announcement, there were 25 communicatio ns between the phone numbers 
assigned to McGinnis or hi s spouse and the phone number assigned to Pugach' s spouse . The 
day after the announcement McGinnis and Pugach spoke five times on the phone. 
10 


• 	Beginning on May 1, 2012 , the accounts ofMcGinnis, P ugach and  B. Pugach were logged 
into scores 
of times over the next three days fro m an  IP address associated w ith McGinnis' s 
home. 
• 	Prior to the announcement, McGinnis purchased 700 out-of- the
-money GMCR put options. 
Pugach purchased 1,850 
GMCR put options (most ofwhich were out of the mo ney). B. 
Pugach shorted 2,000 shares of GMCR. 
• 	Following the announcement, McGinnis sold almost a
ll of his put options for a profit of at 
least 
$839,953.85. Pugach sold almost all ofhis put options for a profit of at least 
$1,235,923.81 , and later reali zed an add itional $789,977.78 at least from exercising options 
and selling shares.  B. Pugach covered her short positi on fo r a  profit 
ofat least $38,565.80. 
August 1, 2012 Earnings Announcement 
• 	
On August 1, 2012, GMCR announced its quarterly earnings. The following trading day, 
GMCR' s stock price increased by 26.52%. 
• 	On July 30, 2012 and August 
1, 20 12, there were 34 telephone or text message 
communications between McGinnis and Pugach or between the phone numbers assigned to 
McGinnis's spouse and 
Pugach's spouse.  In the three days after the announcement, there 
were 54 telephone 
or text message communications between McGinnis and Pugach. 
• 	On July 3 1, 20 12 and August 2, 20 12, both McGinnis' s and Pugach' s acco unts were 
accessed from 
an IP address assigned to McGinnis' s home. 
• 	Prior to  the announcement, McGinnis purchased 300 ca
ll options. Pugach purchased 10,000 
shares of GMCR stock. 
• 	Foll
owing the announcement, McGinnis sold the call options for a profit of at least $86,347. 
Pugach sold the shares he had purchased for a profit ofat least $32,336. 
11 


November 27. 2012 Earnings Announcement 
• 	On November 27, 2012, GMCR announced its quarterly earnings. The following trading 
day, GMCR' s stock price increased by 27.32%. 
• 	Prior to the announcement, there was one telephone communication between McGinnis and 
Pugach and another 46 such communications between the phone numbers assigned to 
McGinnis's spo use and Pugach' s spouse. McGinnis and Pugach communicated five times 
by telephone 
or text message following the announcement. 
• 	Almost every time McGinnis 
or Pugach accessed their accounts prior the announcement, it 
was done from an IP address assigned to McGinnis's home. 
• 	Prior to the announcement, McGinnis purchased 40,000 shares 
of GMCR stock and call 
options.  Pugach purchased  1,400 GMCR call options. 
• 	Following the announcement, McGinnis exercised the call options, thereby acquiring 
additional shares.  He then used tho se shares to sell covered call options, profiting at least 
$1,187,045. 
Pugach exercised the call options, acquiring shares, and then used those shares 
to se
ll covered call options, profiting at least $824,900. 
February 6. 2013 Earnings Announcement 
• 	On February 6, 2013 , 
GMCR announced its quarterly earnings. The following trading day, 
GMCR' s stock price increased 5.35%, the smallest change in response to any 
ofthe earnings 
announcements. 
• 	The day follo wing the announcement, McGinnis and Pugach communicated by telephone. 
• 	McGinnis's and Pugach
's trading accounts were accessed principally from an IP address 
associated with McGinnis's home in the days leading up to the earnings announcement. 
12 


• 	Prior to the announcement, McGinnis sold 500 GMCR put options. Pugach sold 600 GMCR 
put options. 
• 	Following the announcement, McGinnis effective ly repurchased the put options at a lower 
price, for a profit 
ofat least $193,532. Pugach also repurchased  the put options at a lower 
price, for a profit 
of at least $205,628. 
• 	In connection with thi s earnings announcement, McGinnis and Pugach entered into numerous 
other option transactions and, overall, lost money 
on the quarter. This  loss may be attributed 
to the relatively small stock price movement in response to the announcement. 
May 8. 2013 Earnings Announcement 
• 	On May 8, 2013 , 
GMCR announced its quarterly earnings. The fo llowing trading day, 
GMCR's stock price increased by 27.8%. 
• 	While Pugach did not make trades in GMCR stock around this announcement, he did l
og into 
his trading acco unt from 
an IP address assigned to McGinnis ' s home in the days around this 
announcement. 
• 	Around this announcement, McGinnis made various transactions in 
GMCR options and 
stock. Due to limi ted information, the Commission is not yet able to estimate the profits 
made by McGinnis but it appears that he made a substantial profit in excess 
of $ 100,000. 
Defendants' profits and losses avoided from their illegal trades 
19. McGinnis and Pugach ' s profits from their illegal trades surrounding GMCR's 
earnings announcements are at least as follows: 
DATE OF GMCRONEDAY CHAD SERGEY 
ANNOUNCEMENT 
STOCK PRICE McGINNIS PUGACH 
MOVEMENT 
PROFITS PROFITS 
July 28,2010 ­  Q3 9.3 8% increase 
($28.67 to $3 1.36) 
(No trade) $25,6 10.74 
13 


November 19,2010­
Restatement 
of Financials 
18.24% increase 
($30.26 to $35 .78) 
$17,844. 
14 
$131,457.33 
December 9, 
2010­
Q4/Year End 
9.64% decrease 
($37.42 to $33.8 1) 
(No trade) 
$95,748.29 
February 2, 20 
11 -  Q 1 
14.62% increase 
($32.96 to $37.78) 
$57,266.04 
$79,934.76 
May 3, 20 
11 -  Q2 18.59% increase 
($64.07 to $75.98) 
$70,048.20 $ 
113,884.85 
July 27,201 1 -
Q3 16.41% increase 
($88. 11 to $ 1 02.57) 
$ 156,385.62 
$345,204.08 
November 9, 20 
11 -
Q4/Year End 
38.99% decrease 
($67.02 to $40.89) 
(No trade) $305,042.64 
February 1, 20 1
2-Q 1 23.85% increase 
($53.63 to $66.42) 
(No profit) $ 1,068,783.64 
May 2, 
2012-Q2 47.76% decrease 
($49.52 to $25.87) 
$839,953.85 $2,025,901.59 
August 1, 
2012-Q3 
26.52% increase 
($ 17 .9 1 to $22.66) 
$ 13,894.95 $2,083 .78 
November 27, 20 
12 ­
Q4/Year End 
27.32% increase 
($28 .
95 to $36.86) 
$ 1,430, 149.41 $898,686 .70 
February 
6, 20 13-Q 1 5.35% decrease 
($48 .94 to $46.32 
(No profit) (No profit) 
TOTAL PROFITS 
$2,585,542.21 $5,092,338.40 
20. McGinnis and Pugach also avo ided losses of hundreds ofthousands of dollars 
through their illegal trade
s. 
21. B. Pugach opened a brokerage account on January 24,2012 in which she stated 
th at she had less than one year trading experience and had a net wo rth 
ofless than $100,000 . 
14 


Her opening account balance was $ 100,000. On May 2, 2012, B. Pugach shorted 2,000 shares of 
GMCR. B. Pugach profited in the amount ofat least $38,565.80 on this  investment. 
CLAIMS FOR RELIEF 
Violations 
of Exchange Act Section IO(b) and Rule lOb-S Thereunder 
(Against All Defendants) 
22. The Commission realleges and incorporates by reference paragraphs  1 through 
21 , as though fully set forth  herein. 
23. At the time the Defendants made their purchases in connection with 
GMCR's 
earnings announcements, they were in possession ofmaterial, non public information about the 
content 
ofthe announcements. The Defendants: (a) knew, recklessly disregarded or should have 
known that their trading was in breach 
ofa fiduciary duty or an obligation arising from a similar 
relationship 
oftrust and confidence, owed to the shareholders ofGMCR or to GMCR; and (b) 
knew, recklessly di sregarded 
or should have known that the  material, nonpublic information 
about the earnings announcements 
was di sclosed  or misappropriated in breach ofa fiduciary 
duty, or similar relationship 
oftrust and confidence. 
24. All mate
rial, nonpublic infonnation that the McGinnis tipped and Pugach 
received concerning  the earnings announcements was either: (a) misappropriated from 
GMCR 
by McGinnis; or (b) was disclosed  by McGinnis with the expectation ofreceiving a benefit, 
which he received w ith the expectation 
ofreceiving a benefit. 
25. 
By virtue ofthe foregoing, the Defendants, with scie nter, in connection with the 
purchase 
or sale ofsecurities, by use of the means or instrumentalities of interstate commerce, or 
ofthe mails, or a faci lity ofa  national securities excha nge, directly or indirectly: (a) employed 
devices, 
schemes or artifices to defraud; (b) made  untrue statements ofmaterial fact or omitted to 
state material facts necessary in order t   o make 
the statements made,  in light of the circumstances 
15 


under which they were made, not misleading; or (c) engaged in acts, practices or courses of 
business which operated or wo uld have operated as a fraud or deceit upon persons. 
26. 
By virtue of the foregoing, the Defend ants directly or indirectly violated and 
unless enjoined will again violate Section IO(b) 
of the Exchange Act [15 U.S.C. 78j(b)] and Rule 
10b-5 thereunder [17 C.F.R. 240 .10b-5]. 
Violations 
of Securities Act Section 17(a) 
(Against All Defendants) 
27. 
The Commission realleges and incorporates by reference paragraphs  1 through 
26, as though full y set forth herein. 
28. 
By virtue ofthe foregoing, in the offer or sale of securities, by the use ofmeans or 
instruments of transportation or communication in interstate commerce or by the use ofthe 
ma
ils, directly or indirectly, McGinnis and Pugach: (a) employed devices, schemes or artifices to 
defraud ; (b) obtained money 
or property by means ofan untrue statement ofa material fact or 
omitted to state a material fact necessary in order to make the statements made, in li ght ofthe 
circum
stances under which they were made, not misleading; and (c) engaged in transactions, 
prac
tices or courses of business which operate or would operate as a fraud or deceit upon a 
purchase
r. 
29. By reason of the conduct described above, McGinnis and Pugach directly or 
indirectly violated, and unless enjoined will again violate, Section 17(a) ofthe  Securities Act [1 5 
U.S.C. 
§ 77q(a)]. 
RELIEF SOUGHT 
WHEREFORE, the Commi ssion respectfully requests that this Court enter a Final 
Judgment: 
I. 
16 


Temporarily, preliminarily, and permanently restraining and enjoining the Defendants, 
their officers, agents, servants, employees and attorneys, and those persons in active concert 
or 
participatio n with them who receive actual notice of the injunction by personal service or 
otherwise, and each of them, from violating Section 10(b) of the Exchange Act [15 U.S.C. 
78j(b)], Rule 10b-5 thereund
er [17 C.F.R. 240.10b-5] , and Section 17(a) ofthe Securities Act [15 
U.S.C. 
§ 77q(a)]; 
II. 
Ordering the Defendants to disgorge., with prejudgment interest, all illicit trading profits 
and 
losses avoided or other ill-gotten gains received as a result ofthe conduct alleged in this 
Complaint; 
III. 
Ordering the Defendants to pay civil monetary penalties pursuant to Section 2 1 A ofthe 
Exchange Act [15 U.S.C. 78u(d)(3), 
78u-l]; and 
IV. 
Granting such other and further relief as this Court may deem just and proper. 
JURY DEMAND 
The Commission demands a 
jury in this matter. 
17 


. . 

Dated: Jul y 24, 20 13 
Respectfu
lly submitted, 
John B. Hughes (CT05289) 
Connecticut Federal Bar No. ct05289 
Assistant United States Attorney 
Chi
ef, Civil Division 
United States Attorney' s Office 
Connecticut Financial Center 
157 Church St. , 25th Floor 
New Haven, CT 06510 
Ph: (203) 82 
1-3700 
F~DC (203) 773-5373 
E-mail: John.Hughes@usdoj .gov 
VA_~ 
s/Dugan Bliss 
Gregory 
A. Kasper (New York Bar No. 2735405) 
Connecticut Bar N o. phv06 180 
Dugan Bliss (Colo. Bar No. 36698) 
Connecticut Bar No. phv06 181 
Jay Scogg
ins (Colo. Bar No. 28094) 
Connecticut Bar No. phv06182 
Securities a
nd Exchange Commission 
1801 Californ ia Street, Suite 1500 
Denve r, CO 80202 
(303) 844-1000 
E-m 
ail: [email protected] 
[email protected] 
scogginsj @sec.gov 
A
florneysfor Plaintiff: 
SECURITIES AND EXCHANGE COMMISSION 
18 

\ 
UNITED STATES DISTRICT COURT 

DISTRICT OF CONNECTICUT zun JUL 2~ Arlll 33 


SECURITIES AND EXCHANGE 
COMMISSION, 

Plaintiff, 

V. 

CHAD C. McGfNNIS and 
SERGEY PUGACH, 

Defendants, and 

BELLA PUGACH, 

Relief Defendant. 

) 
) 
) 
) 
) 
) 
) 
) 
) 
) 
) 
) 
) 
) 
) 
) 

U.S. D\STR! CT COURT 
NEW HAYEN, CT. 

Civil Action No. 

.? . . /.?- c v . /C/~7 ,4-J/c.. 

COMPLAINT 

JURY TRIAL DEMANDED 

FILED UNDER SEAL 

Plaintiff Securities and Exchange Commission (" Commission"), for its Complaint against 

Defendants Chad C. McGinnis ("McGinnis") and Sergey Pugach (" Pugach") (collectively 

"Defendants"), and Relief Defendant Bella Pugach (" B. Pugach"), alleges as follows: 

SUMMARY 

1. This case involves a nefarious insider-trading scheme executed by Defendants. 

McGinnis used his position as a corporate insider at Green Mountain Coffee Roasters, Inc. 

("GMCR") to obtain material , nonpublic information ahead of earnings announcements. Using 

this information, McGinnis purchased GMCR securities- usually out-of-the-money options ­

shortly before the earnings announcements were made public, then sold them after the 

announcements. McGinnis also tipped his long-time friend and business associate Pugach with 



. ' 

this same information. Pugach in turn made similar trades. Together, McGinnis and Pugach 

profited by well over $7 million between 20 10 and 20 13 from these illegal trades. 

2. Because of their inside information, McGinnis and Pugach ' s trades were 

consistently and exceptionally successful. For 12 out of 13 quarters of earnings announcements, 

they made profitable trades based on high-risk bets of immediate and sharp stock price 

movement. They communicated frequentl y aro und earnings announcements- but infreq uently 

otherwise- and traded in both of their brokerage accounts from the same location. McGinnis 

and Pugach exploited McGinnis' s access to material, nonpublic information to conduct their 

insider-trading scheme to the detriment of GMCR and its shareholders. 

NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT 

3. The Commission brings thi s action pursuant to the authority conferred upon it by 

Section 2 1(d) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. 78u(d)]. The 

Commission seeks preliminary and permanent injunctions against Defendants, enjoining them 

from engaging the transactions, acts, practices and courses of business alleged in this Complaint, 

disgorgement of all ill-gotten gains from the unl awfu l insider trading activity set forth in this 

Complaint, together wi th prejudgment interest, and civil penalties pursuant to Section 21A of the 

Exchange Act [15 U.S.C. 78u-1]. The Commission seeks any other relief that the Court may 

deem appropriate pursuant to Section 21(d)(5) of the Exchange Act [1 5 U.S.C. 78u(d)(5)]. 

JURISDICTION AND VENUE 

4. This Court has jurisdiction over thi s action pursuant to Sections 2l(d), 2l(e) and 

27 ofthe Exchange Act [15 U.S.C. 78u(d), 78u(e) and 78aa]. 

5. Venue lies in this Court pursuant to Section 2l(d), 2 1A and 27 of the Exchange 

Act [1 5 U.S.C. 78u(d), 78u-l and 78aa]. Certain of the acts, practices and transactions and 

2 




courses of business alleged in thi s Co mplaint occurred within the District of Connecticut and 

elsewhere, and were effected, directly or indirectly, by making use of means or instrumentalities 

of transportation or communication in interstate commerce, or the mails, or the facilities of a 

national securities exchange. During the time of the conduct at issue, shares of GMCR were 

traded on the NASDAQ stock market. Defendant Pugach resi des in Connecticut. 

DEFENDANTS AND RELIEF DEFENDANT 

6. Chad C. McGinnis: McGinnis, 35 , lives in Morrisvi lle, Vermont and is a 

System Administrator for GMCR. McGinnis traded ahead of I 0 GMCR earnings releases and 

has made well over $2 million in profits on those trades. McGinnis and Pugach are friends and 

business associates who both attended Fairfield University and previously worked together at 

another company in Connecticut. 

7. Sergey Pugach: Pugach, 34, lives in Hamden, Connecticut and is an Application 

Architect with Aetna Inc. in Hartford , Connecticut. Pugach traded ahead of 12 GMCR earnings 

releases and has made well over $5 million in profits on those trades. 

8. Bella Pugach: B. Pugac h, 57, lives in Brooklyn, New York and is a Home 

Attendant for Home Attendant Services of Hyde Park. B. Pugach is Pugach's mother. Trades 

were made in her account ahead of the May 2012 GMCR earnings announcement making almost 

$40,000 in profit. 

OTHER RELEVANT ENTITY 

9. Green Mountain Coffee Roasters, Inc. GMCR is a Delaware corporation with 

is headquarters in Waterbury, Vermont. GMCR produces and sells coffees, teas and other 

specialty beverages. Its common stock is listed on the NASDAQ exchange under the symbol 

"GMCR." 



FA CTS 


McGinnis had access to material, nonpublic information at GMCR 


10. At all times relevant to this Co mplaint, McGinnis has worked in GMCR ' s 

Information Science and Technology Department and was in charge of admini strating GMCR ' s 

Microsoft SharePoint software, a document and fil e management system that allows for a group 

of employees to work collaboratively on a single set of documents. The SharePoint software 

includes documents used to create the content for GMCR's periodic filings w ith the SEC, which 

include earnings information. By virtue of his pos iti on as System Adm inistrator for the 

SharePoint software, McGinnis had access to material, nonpublic informati on about GMCR 's 

upcoming earnings announcements days before the information was released to the public. 

11. Additionally, by virtue of his rol e as System Admini strator, McGinni s had access 

to other empl oyees' e-mail accounts; and McGinnis had access to the information on GMCR 's 

Investor Relations shared folder on GMCR 's server, where the drafts of pending press releases 

(including earnings releases) are stored. Both of these sources also provided McGinnis with 

access to material, nonpublic info rmation about GMCR' s upcoming earnings announcements 

days before the information was released to the public. 

GMCR maintained an insider trading policv, which McGinnis received 

12. GMCR maintained an Insider Trading Policy (the " Policy") at all times during 

McGinnis' s emp loyment. The Policy applies to "all empl oyees" with respect to " the trad ing of 

the Company's securities, as well as securities not issued by the Company but that are related to 

or bound with the Company's securities (such as exc hange traded options) . .. " The Policy 

precludes employees and others fro m trading on the bas is of material, nonpubl ic information as 

well as tipping others when an employee is aware of material, non public informatio n. " Material 

4 




information" is defined to include " [p ]rej ections of future earnings or losses or other earnings 

gu idance." 	McGinnis was provided with a copy of the Policy. 

McGinnis and Pugach have longstanding and numerous connections 

13. McGinnis and Pugach have numerous connections. Both Jived in the New Haven, 

Connecticut area from 2005 to 2007. During that time, both attended Fairfield University. Both 

also worked at the company Unilever in Trumbull , Connecticut in 2005 and 2006, McGinnis as a 

" Desktop Architect" and Pugach as a " Programmer." McGinnis and Pugach are friends. 

McGinnis and Pugach regularly communicated around their illegal trades 
and sometimes traded from the same location 

14. McGinnis and Pugach communicated frequently in the time period around 

GMCR's earnings announcements, and infrequently otherwise. Phone records obtained by the 

Commission indicate that McGinnis and Pugach communicated via phone call or text message 

116 times between January 24,2010 and March 1, 2013. Of those communications, 90 occurred 

within two days (25 before and 65 after) of the public release of a GMCR earnings 

announcement. Beginning in July 2011 , McGinnis and Pugach also communicated using the 

phone numbers of McGinnis's spouse and Pugach's spouse. Of the communications between 

McGinnis and Pugach's spouse's phone, 18 of22 occurred in the week prior to GMCR's 

earnings announcements. In addition, there were at least another 137 communications - by 

phone call or text message- between McGinnis's spouse's phone and Pugach' s spouse's phone 

in the week prior to , or the day of, GMCR' s earnings anno uncements. 

15. Brokerage accounts for both McGinnis and Pugach we re accessed from the same 

physical location for the purpose of placing trades according to brokerage records obtained by 

the Commission. There are two IP addresses from which brokerage accounts belonging to 

McGinnis, Pugach and B. Pugach we re accessed on the same day. This indicates that these 

5 




accounts were accessed from the same internet connection and, therefore, the same physical 

location. McGinnis and Pugach made trades from these IP addresses, both assigned to 

Morrisville, Vermont, where McGinnis resides, around GMCR' s February 2, 2012, May 2, 2012 

(B. Pugach also traded from the same IP address on this date), August 1, 2012, November 27, 

2012, and February 6, 2013 earnings announcements. 

16. For example and by way of visualization, Defendants' communications and 

illegal trades surrounding GMCR's May 2, 201 2 earnings announcement proceeded as follows, 

with McGinnis and Pugach communicating before earnings releases, trading from the same 

location, and profiting substantially based on material, nonpublic information: 

:------~- · .. ~---~
5/ 1 Tuesday 5/2 Post -Market Close 

McGinnis sells 100 opuon calls McGinnis sells 700 put options. 
avoidinQ ios s<os o f S20 K and purchas<oS 30 K shar.,• McG1nnis • N.,t Profi t of 5839 K 

McGinnis ~~:~a"{,..,t options / IJ 

Cal s cal{ \ LOQS into 

/ LOQS in to TOA account 
 I 

TDAacc\ount / 

J!Y ~ 5/2 Aft<or th., Closing e.,n 
4/29 Sunday 2 ~xts ~tween \,!!£;~ GMCR announc.,s 2nd Quart<or EamiOQs 

McGinn1s· Spouse and GMCR stock d<ocr.,as.,s 48% May 3 Thlxsday 
Pu<;iacn·s Spou--.-.. Sam., IP Addr.,ss 4 calls ~~Neen -

5/1 Tu.,sday 2 calls I ~ d PuQach McG~s i~~"'""" McG1nns and 

Pu<;iacn·s ~ 


5/2 W<odn<osday 

19 t.,xts b<o ~Neen 
 ""' LOQS Illto LOQS into Cal • 

McGinnis· Spouse and 
PuQacn·s Spou--.-.. car,z_ ;m•~• m•~~ = I" 

... ~"n.. ~~ · · . <'.':!::..~. ------- ~ 

4/30 Monday • 5/2 w.,a,.,sday 5/2 Post-M.;ket Close 
Pu~:~ach Sells 700 call options, and PuQach sells 1150 put 

sells 2 10 0+ shar.,s. opUons, .,x<oros.,s 700 Pul)ach • N.,t Profi t of approx 52 M 
purchas<od 1850 put opbons, and and purchas<os 70 K shar.,s Bdla PuQach • N.,t Profi t o f 539 K 
BellaPuQach shorts 2000 shar.,s 

McGinnis tipped Pugach with material, nonpublic information 

17. McGinnis tipped Pugach with material, nonpublic information via 

communications prior to GMCR's earnings announcements. McGinnis knew, recklessly 

disregarded, or should have known that he owed a fiduciary duty or similar obligation of trust 

and confidence to GMCR and its shareholders to keep the material, nonpublic information 

6 




confidential. Pugach knew, recklessly di sregarded, or should have known that information 

tipped by McGinnis was material, nonpublic information disclosed in violation of a relationship 

of trust between McGinnis and GMCR or GMCR' s shareholders, given Defendants ' relationship 

and repeated communications. A t all times Pugac h knew, recklessly disregarded, or should have 

known that McGinnis was a corporate insider at GMCR. McGinnis benefited from tipping 

Pugach by, among other things, conferring a gift of confidential information on his friend Pugach 

and receiving a reputational benefit. Thus, by engaging in their insider-trading scheme, 

McGinnis and Pugach acted with scienter. 

McGinnis and Pugach illegally traded around GMCR's earnings announcements 

18. With one exception, McGinnis, Pugach, and/or B. Pugach have successfully 

traded in GMCR stock around each of its earnings announcements since the Jul y 28, 2010 

earnings announcement. Put simply, they have correctly predicted the reaction of GMCR's stock 

price to twelve out of the last thirteen quarterly earnings announcements. Most of the options 

they purchased were "out of the money" at the time of purchase, representing a bold, collective 

bet of hundreds of thousands in option premiums that GMCR' s stock price would move sharply 

to cover their bet. As a result of all of these trades, McGinnis, Pugach, and B. Pugach have 

illegally made well over $7 million. The illegal trades were as follows: 

July 28, 20 10 Earnings Announcement 

• 	 On July 28 , 2010, GMCR announced it quarterly earnings. The fo llowing trading day, 

GMCR' s stock price increased by 9.38%. 

• 	 Prior to the announcement, Pugach purchased 9,000 shares of GMCR. 

• 	 Following the announcement, Pugach sold the shares fo r a profit of at least $25,610 . 

7 




November 19,2010 Restatement ofFinancials 

• 	 On November 19, 2010, GMCR announced a res tatement of its earnings for the past four 

years. The following trading day, GMCR's stock price increased by 18.24%. 

• 	 Prior to the announcement, McGinnis purchased 3,600 shares of GMCR. Pugach purchased 

12,000 shares ofGMCR and 200 out-of-the-money GMCR call options. 

• 	 Followi ng the announcement, McGinnis so ld the shares for a profit of at least $17,844. 

Pugach so ld the shares and call options for a profit of at least $131,457. 


December 9. 2010 Earnings Announcement 


• 	 On December 9, 2010, GMCR announced its year-end earnings. The following trading day, 

GMCR's stock price decreased by 9.64%. 

• 	 Prior to the announcement, Pugach sold 1,400 GMCR call options that he had previously 

purchased for a profit of at least $95,748. 

• 	 Following the announcement, the options become almost worthless. 

February 2. 2011 Earnings Announcement 

• 	 On February 2, 2011, GMCR announced its quarterly earnings. The following trading day, 

GMCR' s stock price increased by 14.62%. 

• 	 Prior to the announcement, McGinnis purchased 100 out-of-the-money GMCR call options. 

Pugach purchased 4,000 shares of GMCR and 209 out-of-the-money GMCR call options. 

• 	 Following the announcement, McGinnis sold the options for a profit of at least $57,266. 

Pugach so ld the shares and call options for a profi t of at least $79,934. 


May 3. 2011 Earnings Announcement 


• 	 On May 3, 20 11 , GMCR announced it quarterly earnings. The following trading day, 

GMCR's stock price increased by 18.59%. 

8 




• On April 30, 20 11 , Pugach and McGinnis spoke via their cell phones on two occasions. 

• 	 Prior to the anno uncement, McGinnis purchased 125 GMCR call options (most if not all 

were out of the money) and sold 100 put options. Pugach purchased 200 out-of-the-money 

GMCR call options and so ld 280 put options. 

• 	 Following the announcement, McGinnis so ld the call options and most of the put options 

expired out of the money, resulting in a profit of at least $70,048. Pugach sold his call 

options and most of the put options expired out of the money, resul ting in profit of at least 

$113,884. 

Julv 27. 2011 Earnings Announcement 

• 	 On July 27,2011 , GMCR announced it quarterly earnings. The following trading day, 

GMCR's stock price increased by 16.41%. 

• 	 There were seven text messages between the phones of McGinnis's spouse and Pugach's 

spouse on July 21,2011. 

• 	 Prior to the announcement, McGinnis purchased 150 GMCR call options (most were out of 

the money). Pugach purchased 500 GMCR call options (most were out of the money). 

• 	 Following the announcement, McGinnis sold the call options for a profit of at least 

$156,385.62. Pugach sold the call options he had purchased for a profit of at least 

$345,204.08. 

November 9. 2011 Earnings Announcement 

• 	 On November 9, 2011, GMCR announced it quarterly and year-end earnings. The following 

trading day, GMCR' s stock price decreased by 38.99%. 

• 	 Prior to the announcement, Pugach shorted 6,000 shares of GMCR and purchased 100 out­

of-the-money GMCR put options. 

9 


http:345,204.08
http:156,385.62


• 	 Following the announcement, Pugach covered his short position and sold the GMCR put 

options for a profit of at least $305,042. 


February 1. 2012 Earnings Announcement 


• 	 On February 1, 20 12, GMCR announced it quarterly earnings. The following trading day 

GMCR' s stock price increased by 23.85%. 

• 	 Between January 26, 2012 and February 1, 20 12, there were 49 phone communications 

between the phone numbers assigned to the spouses of Pugach and McGinnis, with 25 of 

those occurring on the day of the announcement. 

• 	 While B. Pugach did not trade around this announcement, both she and McGinnis logged into 

their trading accounts on February 1, 201 2 from the same IP address. In addition, Pugach 

made trades from that same IP address in late January. 

• 	 Prior to the rumouncement, McGinni s purchased 50 out-of-the-money GMCR call options. 

Pugach purchased 6,000 shares of GMCR stock and 1,3 85 GMCR call options (most were 

out of the money). 

• 	 Following the announcement, McGinn is so ld the call options for a profit of at least $17,584. 

Pugach sold his shares and call options for a protit of at least $1,068,783. 


May 2. 20 12 Earnin gs Announcement 


• 	 On May 2, 20 12, GMCR announced it quarterly earnings. The fo llowing trading day, 

GMCR' s stock price decreased by 47.76%. 

• 	 Prior to the announcement, there were 25 communications between the phone numbers 

assigned to McGinnis or hi s spouse and the phone number assigned to Pugach' s spouse . The 

day after the announcement McGinnis and Pugach spoke five times on the phone. 

10 




• 	 Beginning on May 1, 2012 , the accounts ofMcGinnis, P ugach and B. Pugach were logged 

into scores of times over the next three days fro m an IP address associated w ith McGinnis' s 

home. 

• 	 Prior to the announcement, McGinnis purchased 700 out-of-the-money GMCR put options. 

Pugach purchased 1,850 GMCR put options (most of which were out of the money). B. 

Pugach shorted 2,000 shares of GMCR. 

• 	 Following the announcement, McGinnis sold almost all of his put options for a profit of at 

least $839,953.85. Pugach sold almost all of his put options for a profit of at least 

$1,235,923.81 , and later realized an add itional $789,977.78 at least from exercising options 

and selling shares. B. Pugach covered her short positi on fo r a profit ofat least $38,565.80. 

August 1, 2012 Earnings Announcement 

• 	 On August 1, 2012, GMCR announced its quarterly earnings. The following trading day, 

GMCR' s stock price increased by 26.52%. 

• 	 On July 30, 2012 and August 1, 20 12, there were 34 telephone or text message 

communications between McGinnis and Pugach or between the phone numbers assigned to 

McGinnis's spouse and Pugach's spouse. In the three days after the announcement, there 

were 54 telephone or text message communications between McGinnis and Pugach. 

• 	 On July 3 1, 20 12 and August 2, 20 12, both McGinnis' s and Pugach' s acco unts were 

accessed from an IP address assigned to McGinnis' s home. 

• 	 Prior to the announcement, McGinnis purchased 300 call options. Pugach purchased 10,000 

shares of GMCR stock. 

• 	 Following the announcement, McGinnis sold the call options for a profit of at least $86,347. 

Pugach sold the shares he had purchased for a profit of at least $32,336. 

11 


http:38,565.80
http:789,977.78
http:1,235,923.81
http:839,953.85


November 27. 2012 Earnings Announcement 

• 	 On November 27, 2012, GMCR announced its quarterly earnings. The following trading 

day, GMCR' s stock price increased by 27.32%. 

• 	 Prior to the announcement, there was one telephone communication between McGinnis and 

Pugach and another 46 such communications between the phone numbers assigned to 

McGinnis's spo use and Pugach' s spouse. McGinnis and Pugach communicated five times 

by telephone or text message following the announcement. 

• 	 Almost every time McGinnis or Pugach accessed their accounts prior the announcement, it 

was done from an IP address assigned to McGinnis's home. 

• 	 Prior to the announcement, McGinnis purchased 40,000 shares of GMCR stock and call 

options. Pugach purchased 1,400 GMCR call options. 

• 	 Following the announcement, McGinnis exercised the call options, thereby acquiring 

additional shares. He then used tho se shares to sell covered call options, profiting at least 

$1,187,045. Pugach exercised the call options, acquiring shares, and then used those shares 

to sell covered call options, profiting at least $824,900. 

February 6. 2013 Earnings Announcement 

• 	 On February 6, 2013 , GMCR announced its quarterly earnings. The following trading day, 

GMCR' s stock price increased 5.35%, the smallest change in response to any of the earnings 

announcements. 

• 	 The day follo wing the announcement, McGinnis and Pugach communicated by telephone. 

• 	 McGinnis's and Pugach's trading accounts were accessed principally from an IP address 

associated with McGinnis's home in the days leading up to the earnings announcement. 

12 




• 	 Prior to the announcement, McGinnis sold 500 GMCR put options. Pugach sold 600 GMCR 

put options. 

• 	 Following the announcement, McGinnis effective ly repurchased the put options at a lower 

price, for a profit of at least $193,532. Pugach also repurchased the put options at a lower 

price, for a profit of at least $205,628. 

• 	 In connection with thi s earnings announcement, McGinnis and Pugach entered into numerous 

other option transactions and, overall, lost money on the quarter. This loss may be attributed 

to the relatively small stock price movement in response to the announcement. 

May 8. 2013 Earnings Announcement 

• 	 On May 8, 2013 , GMCR announced its quarterly earnings. The fo llowing trading day, 

GMCR's stock price increased by 27.8%. 

• 	 While Pugach did not make trades in GMCR stock around this announcement, he did log into 

his trading acco unt from an IP address assigned to McGinnis ' s home in the days around this 

announcement. 

• 	 Around this announcement, McGinnis made various transactions in GMCR options and 

stock. Due to limi ted information, the Commission is not yet able to estimate the profits 

made by McGinnis but it appears that he made a substantial profit in excess of $ 100,000. 

Defendants' profits and losses avoided from their illegal trades 

19. McGinnis and Pugach ' s profits from their illegal trades surrounding GMCR's 

earnings announcements are at least as follows: 

DATE OF GMCRONEDAY CHAD SERGEY 
ANNOUNCEMENT STOCK PRICE McGINNIS PUGACH 

MOVEMENT PROFITS PROFITS 
July 28,2010 ­ Q3 9.3 8% increase 

($28.67 to $3 1.36) 
(No trade) $25,6 10.74 

13 




November 19,2010­
Restatement of Financials 

18.24% increase 
($30.26 to $35 .78) 

$17,844. 14 $131,457.33 

December 9, 2010­
Q4/Year End 

9.64% decrease 
($37.42 to $33.8 1) 

(No trade) $95,748.29 

February 2, 20 11 - Q 1 14.62% increase 
($32.96 to $37.78) 

$57,266.04 $79,934.76 

May 3, 20 11 - Q2 18.59% increase 
($64.07 to $75.98) 

$70,048.20 $ 113,884.85 

July 27,201 1 - Q3 16.41% increase 
($88. 11 to $ 1 02.57) 

$ 156,385.62 $345,204.08 

November 9, 20 11 -
Q4/Year End 

38.99% decrease 
($67.02 to $40.89) 

(No trade) $305,042.64 

February 1, 20 12- Q 1 23.85% increase 
($53.63 to $66.42) 

(No profit) $ 1,068,783.64 

May 2, 2012- Q2 47.76% decrease 
($49.52 to $25.87) 

$839,953.85 $2,025,901.59 

August 1, 2012- Q3 26.52% increase 
($ 17 .9 1 to $22.66) 

$ 13,894.95 $2,083 .78 

November 27, 20 12 ­
Q4/Year End 

27.32% increase 

($28 .95 to $36.86) 

$ 1,430, 149.41 $898,686 .70 

February 6, 20 13- Q 1 5.35% decrease 

($48 .94 to $46.32 

(No profit) (No profit) 

TOTAL PROFITS $2,585,542.21 $5,092,338.40 

20. McGinnis and Pugach also avo ided losses of hundreds of thousands of dollars 

through their illegal trades. 

21. B. Pugach opened a brokerage account on January 24,2012 in which she stated 

that she had less than one year trading experience and had a net wo rth of less than $100,000 . 

14 




Her opening account balance was $ 100,000. On May 2, 2012, B. Pugach shorted 2,000 shares of 

GMCR. B. Pugach profited in the amount of at least $38,565.80 on this investment. 

CLAIMS FOR RELIEF 

Violations of Exchange Act Section IO(b) and Rule lOb-S Thereunder 
(Against All Defendants) 

22. The Commission realleges and incorporates by reference paragraphs 1 through 

21 , as though fully set forth herein. 

23. At the time the Defendants made their purchases in connection with GMCR's 

earnings announcements, they were in possession ofmaterial, non public information about the 

content of the announcements. The Defendants: (a) knew, recklessly disregarded or should have 

known that their trading was in breach of a fiduciary duty or an obligation arising from a similar 

relationship oftrust and confidence, owed to the shareholders ofGMCR or to GMCR; and (b) 

knew, recklessly disregarded or should have known that the material, nonpublic information 

about the earnings announcements was disclosed or misappropriated in breach of a fiduciary 

duty, or similar relationship of trust and confidence. 

24. All material, nonpublic infonnation that the McGinnis tipped and Pugach 

received concerning the earnings announcements was either: (a) misappropriated from GMCR 

by McGinnis; or (b) was disclosed by McGinnis with the expectation of receiving a benefit, 

which he received w ith the expectation of receiving a benefit. 

25. By virtue of the foregoing, the Defendants, with scienter, in connection with the 

purchase or sale of securities, by use of the means or instrumentalities of interstate commerce, or 

of the mails, or a faci lity of a national securities exchange, directl y or indirectly: (a) employed 

devices, schemes or artifices to defraud; (b) made untrue statements of material fact or omitted to 

state material facts necessary in order to make the statements made, in light of the circumstances 

15 


http:38,565.80


under which they were made, not misleading; or (c) engaged in acts, practices or courses of 

business which operated or wo uld have operated as a fraud or deceit upon persons. 

26. By virtue of the foregoing, the Defend ants directly or indirectly violated and 

unless enjoined will again violate Section IO(b) of the Exchange Act [15 U.S.C. 78j(b)] and Rule 

10b-5 thereunder [17 C.F.R. 240 .10b-5]. 

Violations of Securities Act Section 17(a) 
(Against All Defendants) 

27. The Commission realleges and incorporates by reference paragraphs 1 through 

26, as though full y set forth herein. 

28. By virtue of the foregoing, in the offer or sale of securities, by the use of means or 

instruments of transportation or communication in interstate commerce or by the use of the 

mails, directly or indirectly, McGinnis and Pugach: (a) employed devices, schemes or artifices to 

defraud ; (b) obtained money or property by means ofan untrue statement of a material fact or 

omitted to state a material fact necessary in order to make the statements made, in light of the 

circumstances under which they were made, not misleading; and (c) engaged in transactions, 

practices or courses of business which operate or would operate as a fraud or deceit upon a 

purchaser. 

29. By reason of the conduct described above, McGinnis and Pugach directly or 

indirectly violated, and unless enjoined will again violate, Section 17(a) of the Securities Act [1 5 

U.S.C. § 77q(a)]. 

RELIEF SOUGHT 

WHEREFORE, the Commi ssion respectfully requests that this Court enter a Final 

Judgment: 

I. 

16 




Temporarily, preliminarily, and permanently restraining and enjoining the Defendants, 

their officers, agents, servants, employees and attorneys, and those persons in active concert or 

participation with them who receive actual notice of the injunction by personal service or 

otherwise, and each of them, from violating Section 10(b) of the Exchange Act [15 U.S.C. 

78j(b)], Rule 10b-5 thereunder [17 C.F.R. 240.10b-5] , and Section 17(a) ofthe Securities Act [15 

U.S.C. § 77q(a)]; 

II. 

Ordering the Defendants to disgorge., with prejudgment interest, all illicit trading profits 

and losses avoided or other ill-gotten gains received as a result of the conduct alleged in this 

Complaint; 

III. 

Ordering the Defendants to pay civil monetary penalties pursuant to Section 2 1 A of the 

Exchange Act [15 U.S.C. 78u(d)(3), 78u-l]; and 

IV. 

Granting such other and further relief as this Court may deem just and proper. 

JURY DEMAND 

The Commission demands a jury in this matter. 

17 




. . 


Dated: Jul y 24, 20 13 

Respectfully submitted, 

John B. Hughes (CT05289) 

Connecticut Federal Bar No. ct05289 

Assistant United States Attorney 

Chief, Civil Division 

United States Attorney' s Office 
Connecticut Financial Center 

157 Church St. , 25th Floor 

New Haven, CT 06510 
Ph: (203) 82 1-3700 
F~DC (203) 773-5373 

E-mail: John.Hughes@usdoj .gov 

VA_~ 
s/Dugan Bliss 
Gregory A. Kasper (New York Bar No. 2735405) 

Connecticut Bar No. phv06 180 
Dugan Bliss (Colo. Bar No. 36698) 

Connecticut Bar No. phv06 181 
Jay Scoggins (Colo. Bar No. 28094) 

Connecticut Bar No. phv06182 
Securities and Exchange Commission 
1801 Californ ia Street, Suite 1500 
Denver, CO 80202 
(303) 844- 1000 
E-m ail: [email protected] 

[email protected] 
scogginsj @sec.gov 

Aflorneys for Plaintiff: 

SECURITIES AND EXCHANGE COMMISSION 

18 


mailto:[email protected]
mailto:[email protected]
mailto:John.Hughes@usdoj