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Commission Files Settled Insider Trading Case

Commission Files Settled Insider Trading Case

T. GormanPosted on March 14, 2024 Posted in SECActions

Insider trading has long been one of the staples of the Commission’s enforcement program. While each of its cases is based on alleged violations of Exchange Act Section 10b, neither the statute nor the rule based on it, mention the concept.

Over the years, however, the courts have fashioned a complex body of law around the notion that company insiders cannot use material information of the company that is not public for their personal benefit because it breaches their duty to the firm and its shareholders. Stated differently, the information did not belong to them but to the company. Accordingly, the company information could only be used for its benefit. Despite the basic underpinnings of the idea and rigorous enforcement by the Commission, insiders have continued at times to abuse their privilege as corporate confidants, although most do not. The latest Commission case in in this area is SEC v. Cook, Civil Action No. 2:24-cv-00313 (March 12, 2024).

Named as defendants are: Roy Cook, an independent member of Company board of directors and its audit committee; Jeffrey Natrop, a principle of an Architect Firm; Peter Renner, also a principle of the Architect Firm; James Rudolph, a retired friend of Mr. Cook; Peter Williams, an accountant and business associate of Mr. Cook; and Peter Williams, a friend and associate of Mr. Cook.

The case revolves primarily around an offer by hedge fund Blackstone, which held a controlling interest in the general partner of the Company, to purchase all of the outstanding public shares of the Company made on August 27, 2019. Prior to the announcement of the offer, Mr. Cook, through his position as an independent director of the Company, obtained material non-public information about the offer that would be made by a Blackstone affiliate to purchase all of the outstanding public shares of Company.

Prior to the deal announcement each man told about the then potential Blackstone offer — Defendants Natrop, Renner, Rudolph and Williams – purchased shares of the company prior to the deal announcement. The purchases caused the share price to increase significantly.

Subsequently, on August 27, 2019 Blackstone announced an offer for all of the outstanding public shares of the Company priced at $19.50 per share. After three months of negotiations the parties agreed to a final offer price f $22.45. The deal was announced on December 16, 2019.

Each man tipped by Mr. Cook listed above sold his shares. Collectively the group that had been tipped by Mr. Cook had profits of $613,000. Mr. Cook purchased 20,000 shares of the Company prior to the December announcement. When the shares were sold following that announcement, he had profits of $88,000. Mr. Cook also failed to file the required forms with the Commission. The complaint alleged violations of Exchange Act Section 10(b) and, in addition, Section 16(a) as to Mr. Cook.

Each Defendant settled with the Commission, consenting to the entry of a permanent injunction based on the Section or Sections cited in the complaint as to him. Mr. Cook also agreed to disgorge his trading profits and pay a penalty of $801,742 and prejudgment interest. In addition, he agreed to the entry of an officer/director bar. Each other Defendant agreed to pay a penalty equal to the amount of their trading profits and to disgorge those profits along with prejudgment interest.

 

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Prepared:

Thomas O. Gorman

DC Attorney specializing in securities
and other agency litigation

Former SEC Senior Counsel, Enforcement
and Special Trial Counsel, GC Office
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