Another SEC Insider Trading Case: Does it Comply With Newman?
The SEC continues to bolster its allegations regarding the relationships between tipper and tippee in insider trading cases as well as the knowledge of the tippee. Whether those allegations will be sufficient to meet the Newman personal benefit test remains to be seen. The Commission’s latest insider trading case may provide a vehicle for resolving this question outside of the Second Circuit. SEC v. Andrade, Civil Action No. 15-cv-231 (D. R.I. Filed June 8, 2015).
This action centers on the acquisition of Bancorp Rhode Island, Inc. by Brookline Bankcorp, Inc., announced on April 20, 2011. Defendant Anthony Andrade was a member of Bancorp RI’s board of directors for about 14 years. Defendants Fred Goldwyn, Robert Kielbasa and Kenneth Rampino are all long time business associates and friends of Mr. Andrade. Mr. Goldwyn was involved in a printing business with Mr. Andrade; Mr. Kiebassa was involved in real estate investments with Mr. Andrade; and Mr. Rampino is a real estate attorney who does legal work on the real estate investments of Mr. Andrade.
The acquisition transaction traces to February 2011 when the Bancorp RI board of directors received a presentation from the firm’s financial advisers on strategic directions. The presentation included a discussion of four potential acquirers. Over the next several weeks the board continued to consider its options. Management was authorized to pursue discussions with two potential acquirers, one of which was Brookline Bancorp. Mr. Andrade participated in these discussions.
In mid-April 2011 the board directed management to pursue a proposal with Brookline. By April 19, 2011 the two parties had arrived at a deal. Brookline would pay $48.25 per share for the stock of Bancorp RI which was trading at the time at $31 per share. The deal was announced the next day.
On April 12, 2011 Mr. Kielbasa placed a two minute call to Mr. Andrade. Six minutes later Mr. Kiebasa received a call from Mr. Andrade’s business which lasted 4 minutes. Mr. Kiebasa made his first purchase of Bancorp RI stock that day. Subsequent purchases tied to other phone calls with his long time business associate and friend. Overall he acquired 3,000 shares of Bancorp RI which he sold after the announcement for a profit of $39, 645.
In tipping Mr. Kielbasa Mr. Andrade made “an illicit gift or business opportunity of confidential, material, non-pubic information that Kielbasa could profit upon by purchasing Bancorp RI stock . . . At the time Kielbasa received the tip, he knew, and had known for years, that Andrade was a member of the Bankcorp RI board of directors . . .[and] that Andrade had no legitimate business purpose in providing him . . .” the inside information. When questioned by the SEC staff during its investigation Mr. Kielbasa repeatedly asserted his Fifth Amendment rights.
The tipping pattern and allegations regarding Messrs. Goldwyn and Rampino are substantially similar. Mr. Andrade is alleged to have tipped Fred Goldwyn beginning on April 15, 2011. Mr. Goldwyn began purchasing shares that day. Overall he acquired 1,650 shares of a stock he had never before purchased which were sold after the deal announcement for a profit of $21,458. During the staff investigation Mr. Goldwyn repeatedly invoked his Fifth Amendment rights. The allegations regarding the circumstances of the tip and Mr. Goldwyn’s knowledge are substantially identical to those alleged regarding Mr. Kielbasa.
Finally, Mr. Andrade is alleged to have first tipped Mr. Rampino on Friday April 15, 2011. He purchased shares the next business day, Monday April 18, 2011, acquiring 1,500 shares which yielded a post deal profit of $18,959. During the staff investigation he repeatedly invoked his Fifth Amendment rights and declined to testify. The allegations regarding the circumstances of the tip and Mr. Goldwyn’s knowledge are substantially similar to those asserted as to the other two defendants. The complaint alleges violations of Exchange Act Section 10(b).
Messrs. Goldwyn and Kielbasa agreed to settle with the SEC. Each consented to the entry of a permanent injunction prohibiting future violations of Exchange Act Section 10(b). Mr. Kielbasa also agreed to pay disgorgement of $39,645, prejudgment interest and a civil penalty equal to his trading profits. Similarly, Mr. Goldwyn agreed to pay disgorgement of $23,565, prejudgment interest and a civil penalty equal to his trading profits. Messrs. Andrade and Rampino did not settle. See Lit. Rel. No. 23278 (June 8, 2015).