by T. GormanPosted on Posted in SECActions

Insider trading is one of the long time staples of the Commission. While the theories have evolved over time, and in some instances have been controversial, the core idea that insider trading is a form of fraud prohibited the securities laws has been a constant. One of the Commission’s most recent cases in this area is SEC v. Poerio, Civil Action No. 2:24-cv-700 m(W.D. Pa. Filed May 10, 20240

Defendant Frank Poerio, Jr. is a resident of Gibsonia, Pennsylvania. Dick’s Sporting Goods, Inc., a relevant entity, is a sporting goods retailer incorporated in Delaware. Its principal place of business is in Coraopolis, Pennsylvania. The firm’s shares are registered under Exchange Act Section 12(b) and traded on the New York Stock Exchange. Its options are listed on several exchanges.

Over a three-year period, beginning in 2019, Defendant traded shares of Dick’s Sporting Goods while in possession of material inside information about the company. He obtained the insider information by misappropriating it from Individual A. That person was employed by Dick’s Sporting Goods. His role at the firm included supporting internal operations and others. Individual A provided detailed analysis of in-store staffing and related business results. This person also used analytical tools and techniques to evaluate labor productivity to recommend the optimization of store labor investment. This position gave Individual A access to inside information.

Defendant repeatedly misappropriated inside information from Individual A, a friend. Defendant and Individual A had repeated phone calls prior to quarterly announcements by the company. For example, before the August 26, 2020 earnings announcement the two had a series of telephone calls. Defendant increased his position in Dick’s Sporting Goods prior to the announcement by purchasing $637,450 worth of stock and options. This gave him 24,811 shares on August 26, 2020, the day of the earnings announcement. On that day Dick’s Sporting Goods announced earnings of $3.12 per share, an amount that significantly exceeded expectations. During the run up to the announcement Defendant repeatedly chatted with his friend, Individual A. The complaint alleges violations of Exchange Act Section 10(b).

Defendant agreed to a settlement following the entry of a preliminary injunction against him. He agreed to the entry of a permanent injunction and to pay disgorgement, prejudgment interest and a civil penalty in amounts to be determined by the Court. The U.S. Attorney’s Office for the Western District of Pennsylvania announced parallel criminal charges. See Lit. Rel. No. 26002 (May 10, 2024).

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by T. GormanPosted on Posted in SECActions

Offering fraud actions are a long-time staple of SEC Enforcement. The agency has uncovered and initiated a wide variety of cases in this area ranging from sham entities selling worthless shares to more sophisticated actions centered on schemes such as selling non-existent tickets to Broadway plays. The most recent case in this area is based on a fugitive selling shares of a company that has no actual business, SEC v. Guess, Civil Action No. 8:24-cv-00172 (D. Neb. Filed May 9, 2024).

Defendants in the action are Jerry D. Guess and Guess & Co. Corporation, Inc. Defendant Guess is the founder and president of Guess & Co. He has a checkered history that includes a conviction on a misdemeanor check fraud action and being named as a defendant in an action based on a claimed real estate fraud where he failed to appear for a court hearing and subsequently fled to Canada in the wake of a criminal contempt order that was entered against him. He also pleaded guilty to charges of wire fraud and filing false tax returns in 2011. In that case Mr. Guess was sentenced to prison and was released in 2017. Defendant Guess controls Guess & Co.

For nearly one year, beginning in June 2021, Mr. Guess conducted an offering of Guess shares to the public. Potential investors were told that the firm was a diversified energy, health care, technology and real estate firm. The company was reputed to have earned millions of dollars in revenue from its operations in recent years. A business plan was distributed that supposedly was designed to revitalize rural America. Yet the only revenue earned by the company recently is $14,654 from the sale of 19 computers to an electronic re-seller store. The plan was based on false statements. The complaint alleges violations of Securities Act Sections 17(a)(1) and 17(a)(3). The case is in litigation. See Lit. Rel. 26005 (May 14, 2024).