SEC, Insider Trader/Tipper Whose Profits Went to Others Settle
Earlier this spring the Commission resolved insider trading cases where one spouse misappropriated inside information from another and an in-house corporate counsel breached an obligation to his firm by using material non-public corporate information to trade. In both cases the person trading secured ill-gotten gains from the wrongful act – at least for a time. In contrast, in the Commission’s most recent insider trading case the person who breached a duty of confidence by using inside information or by passing it along did not directly profit from it – others did. SEC v. Fettner, Civil Action No. 9:19-cv-80613 (S.D. Fla. Filed May 7, 2019).
Defendant Brian Fettner is a long-time friend of the General Counsel of Cintas Corporation, a Cincinnati based provider of products and services such as uniforms, floor care products, restroom supplies and similar items. The two men had been friends since high school and frequently stayed at one another’s homes. When Mr. Fettner visited Cincinnati to see his parents he stayed at the home of General Counsel.
On June 14, 2016 Mr. Fettner came to Cincinnati to play in a charity golf tournament with General Counsel. As was their custom he stated at the home of General Counsel. At the time Cintas was in merger discussions with G&K Services, Inc., a firm engaged in a similar line of business. The discussions had been underway since May 2016 when they had been rekindled following a break in January of the same year.
By mid-June the discussions had progressed. G&K provided General Counsel with a draft nondisclosure and standstill agreement for review. General Counsel took the papers home in a folder that included other documents pertinent to the discussions. He put the folder in the office/den in his home.
On June 15, 2016 Mr. Fettner went into the office/den to put on his golf shoes. While he was in the room Mr. Fettner saw the documents regarding the then under discussion transaction. He did not mention the materials to his friend. Rather, the two men left the house to play golf.
Later that day Mr. Fettner purchased shares of G&K common stock. The transaction was done in the account of his ex-wife. While he did not have trading authority for the account, in fact he was the only person that actually used it.
Following the golf tournament Mr. Fettner returned home to Henderson Nevada. While there he persuaded his girlfriend to purchase shares as well as his father. He also purchased shares in the account of a former girlfriend and again in the account of his ex-wife. Overall Mr. Fettner, or those he persuaded to buy shares, made five purchases of G&K stock.
When the acquisition was announced on August 16, 2016 the share price rose about 17.7%. Collectively the accounts of ex-wife, girlfriend, former girlfriend and father had profits of at least $250,000. Mr. Fettner did not obtain any of the trading profits. The complaint alleges violations of Exchange Act Section 10(b).
To resolve the case Mr. Fettner consented to the entry of a permanent injunction based on the section cited in the complaint. He also agreed to pay a penalty in the amount of $252,000. The ex-wife and former girlfriend were named as relief defendants.
SEC 85th Anniversary Gala: On June 3, 2019, the SEC Historical Society will host a gala celebration to commemorate the 85th Anniversary of the founding of the U.S. Securities and Exchange Commission and its 20th Anniversary. The event will be held at the Building Museum, Washington, D.C. Following a brief program featuring SEC Chairman Jay Clayton, there will be cocktails and dinner. For further information regarding tables and tickets please contact the Society on or before May 15, 2019 here (full disclosure Mr. Gorman is the President of the Society).