The SEC Files One Insider Trading Case And Settles Another
The SEC continues to focus on insider trading. On Monday, a new case was filed against three individuals, while it settled another which has been in litigation since 2005.
First, the SEC filed an insider trading case against Dr. Zachariah P. Zachariah, Dr. Mammen P. Zachariah and Dr. Sheldon Nassberg. According to the complaint, shortly after Dr. Z. P. Zachariah became a director of IVAX, a Florida pharmaceutical company, he learned from the Chairman and former CEO that the company had entered into a tentative agreement with Teva Pharmaceuticals Limited to be acquired. Almost immediately after Z. P. Zachariah received the telephone call from the Chairman, he initiated a series of trades in the stock of the company despite the fact that there was a trading black out period in effect. Later, Z. P. Zachariah tipped his brother, M. P. Zachariah, who also traded. In total, Z. P. Zachariah purchased 35,000 shares of IVAX stock at a cost of $730,000. His brother purchased 2,000 shares at a cost of about $46,000. After the announcement, each defendant sold his shares. Z. P. Zachariah made a profit of about 20% or about $150,000, while his brother, who purchased the day before the announcement, made a profit of about 10% or $4,600.
The complaint claims that, previously Dr. Z. P. Zachariah either traded on or misappropriated inside information about the acquisition of Correctional Services Corporation by GEO Group, Inc. According to the complaint, Z. P. Zachariah purchased about $200,000 of Correctional Services stock during the time the take over was being negotiated. During that period, the complaint claims he had multiple potential sources of inside information: his companies were a consultant to GEO; he was a long time personal friend of GEO’s chairman and chief executive officer; and his son Zachariah P. Zachariah, Jr. (known as Reggie) worked as a financial analyst in GEO’s mergers and acquisitions group and worked extensively on the deal. According to the complaint, Z. P. Zachariah either acquired the inside information or misappropriated it from one of these sources and traded while in possession of it. He also passed the information to his brother Mammen and a friend, Dr. Sheldon Nassberg. In total, the three men purchased more that $390,000 of Correctional stock.
None of the defendants settled. This case is in litigation. SEC v. Zachariah, Civil Action No. 08-60698 (S.D. Fl. May 12, 2008). The Commission’s Litigation Release on the matter is here.
Second, the SEC settled an insider trading case based on the 2004 takeover of Charter One Financial, Inc., by Citizens Bank. SEC v. Tom, Civil Action No. 05-CV-11966 (D. Mass. Filed Sept. 29, 2005). The SEC’s complaint was brought against Global Time Capital Management, LLC, an investment adviser, its portfolio manager and principal, Michael Tom, former Citizens employee Shengnan Wang and her husband Hai Liu and Michael Tom’s brother, David Tom. The U.S. Attorney’s Office filed related criminal charges against Shengnan and her husband.
According to the complaint, Shengnan Wang learned of the potential takeover transaction during final due diligence and tipped her husband, who in turn told Mr. Tom, a former Citizen’s employee who was then running a hedge fund in which her husband had invested. Subsequently, defendant Tom purchased Charter One call options for his personal account and that of the hedge fund. Mr. Tom also purchased Charter One stock in a joint account he managed for his wife and in-laws. Collectively, his trading yielded $743,505 in profits following the announcement. Mr. Tom and Hai Liu also tipped their brothers, David Tom and Zheng Liu, respectively. Both brothers traded in Charter One.
On Monday, the Commission announced that Michael Tom and Global Time Capital Management settled the action by consenting to the entry of statutory injunctions prohibiting future violations of Section 10(b) and Rule 10b-5. In addition, Mr. Tom also agreed to pay disgorgement of over $543,000 plus prejudgment interest of over $107,000 and a civil penalty of $150,000. Global Time Capital agreed to pay a penalty of about $39,000 and relief defendant GTC Growth Fund agreed to pay over $189,000 in disgorgement and prejudgment interest of bout $23,000.
Previously, in June 2006, Shengnan Wang, her husband Hai Liu and his brother Zheng Liu settled. Each defendant consented to the entry of statutory injunctions and the payment of disgorgement, prejudgment interest and civil penalties.