by T. GormanPosted on Posted in SECActions

The Commission prevailed on its summary judgment motion in an insider trading case against a husband and wife. SEC v. Jantzen, Case No. 1:10-cv-00740 (W.D. Tex.). The case was brought against John Jantzen, a registered securities broker, and his wife Marleen Jantzen, a former assistant to an executive at Dell, Inc.

The case centers on the acquisition of Perot Systems, Inc. by Dell, announced on September 21, 2009. Following the announcement the share price of Perot Systems increased by about 65%.

Prior to the announcement Mrs. Jantzen learned from internal Dell e-mails information about the then pending tender offer, according to the Commission. She then tipped her husband. On the final day of trading before the announcement, Mrs. Jantzen made a cash transfer to the brokerage account of the couple. Shortly after the transfer Mr. Jantzen purchased 24 call options and 500 shares of Perot Systems. Dell securities were also purchased. Following the deal announcement the couple had one day trading profits of $26,950.50.

In granting the Commission’s motion for summary judgment the Court found that the two defendants violated Exchange Act Sections 10(b) and 14(e). The Court entered an injunction against each defendant prohibiting future violations of each Section. The order also directed that the defendants pay disgorgement in the amount of their trading profits along with prejudgment interest. Further briefing was ordered on the question of a monetary penalty.

Previously, the Commission resolved an action based on the same transaction which had been brought against Reza Saleh, an employee of Parkcentral Capital Management, LP. , a firm did work for a non-public affiliate of Perot Systems. SEC v. Saleh, Case NO. 3:09-cv-01778 (N.D. Tex. Filed Sept. 23, 2009). The action, filed two days after the take-over announcement, claimed that Mr. Saleh traded while in possession of inside information on the same day the Jantzens traded. He purchased 9,332 call options scheduled to expire in October 2009. After the announcement he sold the options, realizing a profit of $8.6 million.

According to the complaint, Mr. Saleh asked questions of a Parkcentral director who was also a Perot Systems director which indicated that he knew material, non-public information about the then pending transaction. This included the fact that Perot Investments would be acquired at a premium. At the time Mr. Saleh had a Perot Systems e-mail account. The purchase and sale transactions violated company policy.

Defendant Saleh settled with the Commission, consenting to the entry of a permanently injunction prohibiting future violations of Exchange Act Sections 10(b) and 14(e). The order also directed Mr. Saleh to pay disgorgement and a civil penalty in an amount to be determined by the Court.

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by T. GormanPosted on Posted in SECActions

The SEC filed two settled insider trading cases against two professionals who traded in the same take over stock. The defendants had no relationship. One was on the East Coast. The other was on the West Coast. Both settled on essentially the same terms with the Commission. One however was told about the deal in the course of his employment. The other assumed a deal would be forthcoming based on the information available to him. SEC v. Williams, Civil Action No. 12-1126 (E.D. Pa. Filed March 5, 2012); SEC v. Duncan, Civil Action No. CV 12-1785 (C.D. Ca. Filed March 5, 2012)

Each case is based on the acquisition of aerospace and defense industries manufacturer Hi-Shear Technology Corporation by Chemring Group PLC. The deal was announced on September 16, 2009. The defendant in the first case is John M. Williams, an employee of Deloitte Tax LLP since 1997. He was a tax manager resident in their Philadelphia, Pennsylvania office. In the second the defendant is William F. Duncan, the President of Duncan Insurance Service, Inc., dba The Olson Duncan Agency, a California insurance brokerage firm. Mr. Duncan and his agency had a long term relationship with Hi-Shear. The agency had provided property and casualty brokerage services to Hi-Shear for 8-10 years. The firm also wrote D&O insurance for the company.

Defendant Williams was told about the deal as part of his work at Deloitte. As the a tax manager for firm, Mr. Williams began assisting with Chemring’s proposed acquisition of Hi-Shear, code named “Project Harriet,” in late July. On August 31 he circulated a memorandum containing his tax analysis for the acquisition of Harriet. At about the same time he was told that the target was Hi-Shear. Subsequently, on September 9, 2009 he received an e-mail chain about the deal which again identified Hi-Shear.

From September 10 to 14 Mr. Williams purchased 850 shares of Hi-Shear stock. He did not report the transactions to Deloitte as required. Following the deal announcement he liquidated his holding, realizing profits of $6,803.18.

Mr. Duncan deduced that a transaction would be forthcoming from the information available to him through his work with the company. In late 2008 Hi-Shear conducted a review of its D&O insurance and concluded that additional coverage was required. Olson Duncan presented the company with a proposal to expand its coverage in late January 2009 pursuant to a request by Hi-Shear. Toward the end of the next month Hi-Shear gave Mr. Duncan an attorney-client privileged memorandum which analyzed its D&O coverage and specifically questioned if it was adequate in the event of a strategic transaction and, in one section, if control of the company was sold.

Five months later Mr. Duncan received an e-mail from the company asking about a 6-year “tail” for its existing D&O policy. Such a policy is “specific coverage to extend a D&O policy when a company is acquired or sold,” according to the complaint. Mr. Duncan furnished an estimate the day after he received the e-mail but noted that the underwriters would not give a specific quote until they were furnished with an actual agreement.

Mr. Duncan began purchasing Hi-Sear stock the day he furnished the company with the quote on the tail. By September 9 he had acquired 10,000 shares at a cost of over $102,000. Following the September 16 announcement he liquidated his holdings, realizing a profit of $85,525.

Each defendant settled on essentially the same terms, consenting to the entry of a permanent injunction, without admitting or denying the allegations in the complaint, which prohibits future violations of Exchange Act Section 10(b). Each defendant agreed to pay disgorgement along with prejudgment interest and a penalty equal to their trading profits. Mr. Williams also agreed to the entry of an administrative order which suspends him from appearing or practicing before the Commission as an accountant for five years.

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