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Buyout Pro Agrees To Fine, Lifetime Ban In Insider Trading Scandal

Joseph Massoud, the founder of  Compass Group Management, the manager of publicly traded private equity firm Compass Diversified Holdings (CODI), settled insider trading charges the Securities and Exchange Commission had brought against him, Buyouts reported yesterday.


Massoud has paid a $1.4 million fine to settle the charges, and is barred from working in the securities industry or serving as an officer or director of a public company, according to a Nov. 30 SEC press release.

The SEC alleged that Massoud traded ahead of the sale of Patriot Capital Funding Group, another private equity firm, on insider information that he had obtained in a data room where bidders could research the firm’s financial health. Patriot Capital had initiated a private bidding process in 2009 as it looked at a possible sale, according to the SEC.

To enter the data room, Compass Group had to agree to a confidentiality agreement that forbade its executives from buying the company’s stock. In its announcement, the SEC discussed e-mails from Massoud in which he discussed the process with other Compass Group employees.

“Nonetheless, Massoud purchased shares soon after Compass Group gained access to the confidential information, and he bought even more stock after he learned that Compass Group’s bid was what he described was ‘waaaay off’ compared to the bids from other companies,” officials from the SEC wrote in their announcement, which added that Massoud pocketed $676,000 in illegal profits from the trades.

Compass Diversified Holdings appointed a new CEO, Alan Offenberg, according to a press release issued on Nov. 30, the same day as the SEC’s announcement, and has sought to distance itself from the situation despite what by all accounts is a very close relationship between the entities, both of which Massoud helped establish. Further, Offenberg is now listed as a partner on Compass Group’s Web site, which prominently features a link to Compass Diversified Holdings, whose day-to-day activities Compass Group manages.

Compass Diversified’s Nov. 30 announcement notes that Massoud had been on a leave of absence from his role as CEO since February 2011. At that time, the company said in a press release that Massoud requested, and the company’s board approved, a leave of absence to focus on “an informal regulatory inquiry that Mr. Massoud has received on matters unrelated to CODI.” It reiterated that sentiment in its announcement about Offenberg, saying that the SEC settlement concerned “personal trading matters from 2009, unrelated to CODI, its operations and securities.”

Compass Diversified seeks control-stake buyouts in small to mid-market companies that generate a minimum of $8 million in a variety of industries. Its portfolio includes CamelBak Products LLC, a maker of personal hydration gear; and Tridien Medical Inc., a manufacturer of medical devices for the acute-care, long-term care and home health care markets. Founded in 1998 as a private equity firm with one backer, the firm went public in 2006.

“We don’t see this as a disadvantage, but we are subject to the full transparency requirements of a public company,” Massoud told Buyouts in a 2010 interview, when asked about any disadvantages in being a public company. “So we are Sarbanes-Oxley compliant, we have an outside, independent board, and we do our financials quarterly. All the transparency has actually been an advantage in certain ways.”

Executives with Compass Diversified Holdings declined to comment beyond the company’s press release. Massoud could not be reached for comment.

According to a 2006 Buyouts story on Massoud, he started his career at McKinsey & Co.’s Los Angeles and Mexico City Offices before departing for Harvard Business School in 2006. In 1993, he joined Los Angeles-based Colony Capital.In 1998, he helped start Compass Group, which invested money on behalf of the TK Foundation, a philanthropic organization started by Teekay Shipping founder J. Torben Karlshoej, according to that story.

Image of  Massoud from 2010 interview in Buyouts archives.