This Week In Securities Litigation (November 7, 2008)
This was a week to resolve or, at least partially resolve, cases in litigation. The SEC settled one insider trading case filed in early 2007 and partially settled another fraud case initially filed in 2006. In addition, one significant criminal insider trading case came to a close, with the defendant being sentenced.
The SEC concluded months of litigation against a former board and audit committee member in an insider trading case with a settlement. In SEC v. Erickson, Case No. 03-07-CV-0254 (N.D. Tex. Filed Feb. 7, 2007), the Commission brought an insider trading case against Donald Erickson, former audit committee member of Magnum Hunter Resources, Inc. After having regular briefings about a pending deal under which Magnum Hunter would be acquired by Cimarex, and participating in key decisions about the transaction, Mr. Erickson purchased and exercised call options.
To resolve the case Mr. Erickson consented to a permanent injunction and an order requiring him to pay disgorgement and prejudgment interest. The Court ordered him to pay a penalty equal to the amount of the disgorgement, as discussed here.
The SEC also settled with two of six former Putnam Fiduciary Trust Company employees. The case, brought two years ago, alleges that the defendants tried to cover their failure and the resulting loss from not properly investing the funds from Cardinal Health’s defined contribution plan. Rather, the losses were spread over other funds and left in part in Cardinal’s account as discussed here.
The two settling defendants consented to the entry of permanent injunctions. In addition, each consented to the payment of a civil penalty. SEC v. Durgarian, Case No. 05-12618 (D. Mass. Jan. 3, 2006).
A criminal insider trading case came to an end when Mitchel Guttenberg, a former executive director in the equity research department of UBS Securities LLC was sentenced to 78 months imprisonment and ordered to forfeit $15.81 million in illegal trading profits. Mr. Guttenberg previously pled guilty to two counts of conspiracy to commit securities fraud and four counts of securities fraud in connection with an insider trading scheme. Mr. Guttenberg is one of 13 individuals charged in connection with this insider trading scheme which used information about up-coming UBS stock recommendations to trade and make millions in illegal profits.
The Commission’s insider trading case against Mr. Guttenberg has been called the most significant since the late 1980’s. That case, based on two insider trading schemes, named 14 individuals as defendants who were mostly market professionals and attorneys as discussed here. SEC v Guttenberg, Case No. 1:07-cv-01774 (S.D.N.Y. Filed March 1, 2007).