A Litigated Insider Trading Case Against An Audit Committee Member Settles
The Commission settled another insider trading case on Friday, SEC v. Erickson, Civil Action No. 03-07-CV-0254 (N.D. Tex. Filed Feb. 7, 2007). This action has been in litigation since early 2007. It claimed that Donald Erickson, a former audit committee chairman and director of Magnum Hunter Resources, Inc., traded on inside information. Specifically, the complaint alleged that Magnum Hunter was up for sale. During negotiations to be acquired by Cimarex, Mr. Erickson was regularly briefed about the deal. He also participated in key decisions regarding the transaction as it was being negotiated.
Two trading days before the mid-January 2005 announcement of the merger, and the day after he attended a board meeting, Mr. Erickson exercised call options and acquired 30,000 shares of MHR stock. The call options, according to the Commission, were purchased and exercised while Mr. Erickson was in possession of material non-public information about Magnum Hunter’s merger negotiations.
To settle the case, Mr. Erickson consented to the entry of a permanent injunction which prohibits future violations of Sections 10(b) and 16(a) (for failing to file the required forms regarding the purchase of the options) and the pertinent rules under each section. He also agreed to disgorge $46,200 in trading profits and pay $11,399.67 in prejudgment interest. The Court imposed a civil penalty on Mr. Erickson of $46,200.