by T. GormanPosted on Posted in SECActions

The Commission filed a settled insider trading case against a corporate executive who traded in advance of a tender offer while in possession of material, non-public information. SEC v. Lackey, Civil Action No. 2:13-CV-2153 (W.D. Tenn. Filed March 11, 2013). The defendant in the case is Michael Lackey, formerly Vice-President and General Manager of International Paper Company. The deal he traded in advance of was the tender offer by his employer for Temple-Inland, Inc., announced on June 6, 2011.

Two years before the tender offer announcement International Paper’s Board of Directors asked senior managers to consider what type of strategic transactions might make sense for the company. Within a year a management group focused on five possible companies. By the fall of 2010 the group began to prepare a proposal for Temple-Island. The group included Executive A.

By the Spring of 2011 the group was considering pricing and terms for an offer to Temple-Island. On April 30, 2011 Mr. Lackey attended a charity event with Executive A. During the event the two men discussed the possible acquisition of Temple-Island. Mr. Lackey learned, according to the complaint, that there was “a good chance” the deal would proceed.

Between May 2 and June 1, 2011 Mr. Lackey purchased 9,000 shares of Temple-Island in two accounts. At the time of the purchases International Paper had policies and procedures which required its employees to maintain the confidentiality of its information.

After the close of trading on June 6, 2011 the deal was announced. The hostile tender offer was priced at $30.60 per share, a 46% premium to market. The following day Temple-Island’s stock opened at $29.97 and closed at $29.49. During the trading day Mr. Lackey sold his holdings, yielding a profit of $56,533.89. The Commission’s complaint alleges violations of Exchange Act Sections 10(b) and 14(e).

Mr. Lackey settled with the Commission, consenting to the entry of a permanent injunction prohibiting future violations of the Sections cited in the complaint. He also agreed to pay disgorgement in the amount of his trading profits, a penalty in that amount and prejudgment interest. See also Lit. Rel. No. 22640 (March 11, 2013).

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by T. GormanPosted on Posted in SECActions

Mary Jo White, President Obama’s nominee to become Chairman of the SEC, testified before the Senate Committee on Banking, Housing and Urban Affairs as part of the confirmation process. While some had anticipated that the testimony might be elongated or contentious because of her prominent Wall Street white collar practice, both her written testimony and the questioning were brief.

Ms. White focused largely on the broad agenda she would face as Chairman, making only a brief reference to her years in practice by citing to her time as the U.S. Attorney for the Southern District of New York as a predicate to dating her admiration of the SEC. During that period she became “a strong admirer of the expertise, independence, and commitment of the Commission and its staff.” She went on to emphasize the critical role of the SEC as the primary regulator of the capital markets and as a strong advocate for investors. Citing Dodd-Frank and the JOBS Act she stated that “the SEC’s importance and scope of responsibilities are greater than ever.”

Chairmen Shapiro and Walter have shepherded the agency through difficult times and the worst of the market crisis Ms. White noted. The agency is making substantial progress and has taken significant steps to “strengthen its examination and enforcement functions.” At the same time changing and evolving markets require constant monitoring and analysis. The Chairman must take the long view, Ms. White told the Committee.

She then focused on three points before concluding:

Rulemaking: It is essential that the Commission finish “in as timely and smart a way as possible” rule making under Dodd-Frank and the JOBS Act. It needs to be “right, but it also needs to get . . . done.” Critical to this is a “rigorous economic analysis” which will ensure “effective and optimal solutions” that do not unnecessarily burden or cause competitive harm.

Enforcement: Enforcement will be a “high priority throughout my tenure . . .” The Committee was told. It “must be bold and unrelenting. Investors and all market participants need to know that the playing field of our markets is level and that all wrongdoers – individual and institutional of whatever position or size – will be aggressively and successfully pursued by the SEC.” Aggressive enforcement is “not only the right thing to do, but it also will serve to deter the sharp and unlawful practices of others who must be made to think twice – and stop in their tracks – rather than risk discovery, pursuit, and punishment by the SEC.”

Markets: Experts disagree about the impact of high speed trading, dark pools, complex trading algorithms and intricate new order types, according to Ms. White. What is critical here is that “a sense of urgency [be] brought to addressing these issues to understand their impact on investors and the quality of our markets so that the appropriate regulatory responses can be made.”

Noting that there are many other issues facing the SEC, Ms. White concluded by telling the Committee that “[i]f confirmed, I would focus on these and the many other challenges facing the SEC.”

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