The SEC Continues To Focus On Insider Trading

Insider trading continues to be a key focus of the enforcement division. Last year, there was a significant increase in the number of insider trading cases brought by the division, as discussed here. Likewise, NYSE Regulation reports that insider trading is increasing and that while the number of suspected cases involving hedge funds is decreasing, the number involving corporate insiders is rising as also discussed here. These trends appear to be consistent with those observed by market regulators around the world.

On Friday, the SEC filed another settled insider trading case, SEC v. Biello, Civil Action No. 4:09-CV-00752 (S.D. Tex. Filed March 13, 2009). This case was based on the takeover of ACR Group, Inc., a Houston based distributor of air conditioning, heating and other HVAC-related products, by Watsco, Inc., a Miami, Florida based distributor of the same type of products and services.

The complaint alleges that defendant Michael Biello, an accountant with ACR Supply, a subsidiary of ACR Group, learned in April 2007 that the company was considering a possible merger with Watsco. At the time, Mr. Biello was on temporary assignment from the subsidiary to the parent company. The next month, Mr. Biello was instructed to conform ACR Group’s quarterly SEC filings to the format used by Watsco, an instruction he understood to confirm the fact that the merger was going forward.

In June, Mr. Biello instructed his brother to purchase ACR Group shares. At the time, he indicated the company was a probably a merger candidate. Accordingly, later that month his brother purchased about 3,300 shares of ACR Group for a total of about $16,000 in two transactions. When the takeover was announced on July 5, 2007, the share price rose about 44%. Mr. Biello’s brother sold his shares, earning a profit of just over $6,000.

To settle the case, Mr. Biello consented to the entry of a permanent injunction prohibiting future violations of Sections 10(b) and 14(e) of the Exchange Act. In addition, he agreed to pay disgorgement of just over $6,000 plus prejudgment interest and a civil penalty equal to the amount of the trading profits. An action has not been brought against the brother.