Another SEC Insider Trading Case As An Administrative Proceeding

The SEC began the year by filing a settled insider trading case. The action is largely unremarkable as insider trading cases go, although some might question if all the key elements of a claim are pleaded. The facts are simple and straight forward. What may be remarkable is the forum in the context of other recent insider trading cases. In the Matter of Vivian S. Shields, Adm. Proc. File No. 3-17034 (January 4, 2016).

The case centers on the tender offer for the shares of J. Alexander’s Corporation by Fidelity National Financial, Inc., announced on June 25, 2012. J. Alexander’s is a restaurant chain based in Nashville, Tennessee. Fidelity National is an insurance, mortgage services and diversified services firm which also holds stakes in businesses in other industries, including the restaurant industry. The Order does not disclose the employment or trading history of Ms. Shields.

The deal which lead to the tender offer began on April 17, 2012 when Fidelity proposed a tender offer for 50.1% of J. Alexander’s common stock. The two companies entered into an exclusivity agreement the next day.

Meetings between executives of the two firms were subsequently held between April 26, 2012 and May 2, 2012. Specifically, on April 26 the CEO and COB of J. Alexander’s met with the Executive Chairman and Executive Vice President of Fidelity to discuss the proposed tender offer. Additional meetings were held involving senior managers, investment bankers and counsel for J. Alexander’s with counsel and investment bankers for Fidelity regarding the structure of the proposed deal.

On May 18, 2012 Ms. Shields “indirectly acquired material, nonpublic information relating to what was ultimately a tender offer . . .” from a J. Alexander’s employee, according to the Order. On June 1 and 6 Ms. Shields purchased a total of 12,000 shares of J. Alexander’s stock while in possession of that information. There is no allegation what Ms. Shields knew about the information she somehow acquired or any claim that a substantial step toward a tender offer had been taken.

Ms. Shields sold 1,000 shares of the stock in mid-July and tendered the balance in September. In total Ms. Shields had profits of $71,401.12. The Order alleges violations of Exchange Act Section 14(e) and Rule 14e-3.

To resolve the action Ms. Shields consented to the entry of a cease and desist order based on the Section and Rule cited in the Order. She also agreed to disgorge her trading profits, pay prejudgment interest and a penalty equal to the amount of the trading profits.

This is the third insider trading case filed by the Commission as an administrative proceeding in recent weeks. The Shear action, filed December 18, 2015, is a settled proceeding where a corporate insider traded on inside information. The Carpenter proceeding, filed just before Christmas on December 22, 2015, is a tipping case in which the Order does not specifically allege a Newman benefit. While it is may be premature to call three cases in a short time period, a trend it is well worth watching to see if one develops. This is particularly true in view of the paucity of allegations contained in two of the three actions.

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