SEC Brings Two Insider Trading Cases
The Commission filed two insider trading cases in the last two days where the person with access to the inside information traded and profited. One case is being litigated in federal district court. SEC v. Alpert, Civil Action No. 1:17-cv-01876 (S.D.N.Y. Filed March 15, 2017). One was resolved and a settled administrative proceeding was filed. In the Matter of Nima Hedayati, Adm. Proc. File No. 3-17881 (March 14, 2017).
Alpert centers on the acquisition of H.J. Heinz Company by Berkshire Hathaway, Inc. and 3G Capital Partners Ltd, announced on February 14, 2013. The transaction traces to mid-January 2013 when Berkshire Hathaway and 3G Capital made a proposed to acquire Heinz. The board of directors considered the proposal at a meeting held just after the proposal was made. Later that month a revised proposal was made. Heinz agreed to move forward with due diligence. By February 13, 2013 the board approved a deal pursuant to which the company would be acquired for $72.50 per share.
A Heinz Board Member employed defendant Todd Alpert at his home as a security guard. His duties involved working in a security booth on the property of the Board Member and performing a variety of functions for the family. One function was to monitor a Security Email Account to which the Board Member periodically sent email and attachments. Mr. Alpert was charged with monitoring the account and printing out emails and attachments for Board Member to review.
In January and February 2013 Board Member either sent or had sent material regarding the proposed acquisition of Heinz. For example, on the evening of January 24, 2013 Board Member forwarded an email regarding the proposed deal to the Security Email Account and directed that it be printed out along with the attachments. The materials discussed the deal, the price and were labeled Confidential. The next day Mr. Alpert was on duty and clocked into the Security Email Account at 1:53 p.m. At 2:15 p.m. he called his broker and purchased 1,000 shares of Heinz common stock.
Subsequently, Mr. Alpert had access to additional, similar emails regarding the deal. Over time he purchased 30 options. On the day of the deal announcement Mr. Alpert sold his shares and options, reaping profits of $43,873.32. He later admitted to Board Member that he read the material about the proposed deal and purchased Heinz securities. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 23780 (March 15, 2017).
Hedayati centers on the merger of KLA-Tencor Corporation and Lam Research Corporation, announced on October 21, 2015. Nima Hedayati was an audit staff member employed by Lam’s PCAOB-registered independent Audit Firm.
From August through October 2015 the two firms held a series of meetings and exchanged communications regarding a possible transaction. In late September 2015 Lam made its third and best offer to acquire KLA-Tencor, offering $32 per share and 0.5 shares of Lam common stock. Subsequently, the two firms conducted due diligence and negotiated a merger agreement.
Mr. Hedayati became aware of the proposed deal in meetings he attended with other members of the Audit Firm. During the course of his work on the engagement Mr. Hedayati reviewed minutes of meetings of the Lam Board of Directors that referenced the proposed merger.
As the deal unfolded Mr. Hedayati told his mother to “look into” trading KLA-Tencor. She purchased 1,400 shares of the stock. Subsequently, he purchased 20 out of the money option contracts in his account and an additional 20 in the account of his fiancée at the time. Following the deal announcement he liquidated the holdings of the two accounts, realizing profits of $27,971.50. His mother also sold her shares, reaping profits of $15,056.00.00. Later Mr. Hedayati’s employment was terminated after Audit Firm learned about the trades. The Order alleges violations of Exchange Act Section 10(b).
To resolve the action Mr. Hedayati consented to the entry of a cease and desist order based on the Section cited in the Order. He agreed to pay disgorgement of $43,027.59, prejudgment interest and a penalty equal to the amount of the disgorgement. In addition, he was denied the privilege of appearing or practicing before the Commission as an accountant with a right to request reinstatement after five years.