TWO INSIDER TRADING CASES; TWO DIFFERENT ISSUES
Insider trading cases large and small continue to be a key focus for SEC Enforcement. Yesterday, the Commission filed two settled insider trading case. One is a pillow talk case where apparently the husband misappropriated the inside information from the wife. The second presents a question of duty, since inside information was given to the trader and his company without an explicit confidentiality agreement. SEC v. Macdonald, Case No. 3:10cv151 (D. Conn. Filed Feb 2, 2010); SEC v. Levinberg, Case No. 10-CV-777 (S.D.N.Y. Filed Feb. 2, 2010).
Macdonald is a pillow talk case in which defendant Bruce Macdonald is alleged to have misappropriated inside information from his wife, traded for his account and that of a friend and tipped others. Specifically, the Commission’s complaint alleges that the board of directors of Memry Corporation began taking steps to sell the company in 2006. By September 2007, the company had selected an investment bank and shortly thereafter began soliciting bids. On June 24, 2008 the company announced that it was being acquired. The stock price rose 64% from $0.94 per share to $1.45.
Throughout the acquisition process, Mr. Macdonald’s wife, the corporate secretary and vice president of human resources, was involved at each key stage of the process which led to the acquisition announcement. As the process unfolded, Mrs. Macdonald updated her husband. Those updates included a discussion of a black out period imposed by the company because of the negotiations. Although the complaint does not specify that Mrs. Macdonald directed her husband to keep the information confidential, it does specify that, based on their marital relationship, he owed her a duty of trust and confidence regarding the information.
Nevertheless, without informing his wife, Mr. Macdonald purchased shares of Memry in his business account and in the account of a long time friend for whom he regularly traded, Bruce Bohlander, a relief defendant. The purchases began in July 2007 with the acquisition of 1,000 shares for his account. Subsequently, Mr. Macdonald made two purchases 24,000 shares in Mr. Bohlander’s account. One purchase was at the end of July 2007, while the second was in April 2008. In an apparent attempt to assuage any materiality issues, the complaint ties the purchases to a specific chronology of the company moving forward toward an acquisition.
In early 2008, Mr. Macdonald also tipped three friends, including Defendant Robert Maresca. Mr. Maresca subsequently purchased 9,000 shares of Memry stock. The other two friends, who are not named in the complaint, acquired a total of 8,250 shares. As a result of the trading, Mr. Macdonald had ill-gotten gains of $890 in his account and $25,508 in Mr. Bohlander’s account. Mr. Maresca had gains of $12,335 while the two unidentified traders made $7,307.50.
To resolve the case, Messrs. Macdonald and Maresca consented to the entry of permanent injunctions prohibiting future violations of the antifraud provisions of the Exchange Act. Each man also agreed to the entry of an order requiring him to disgorge the trading profits, along with prejudgment interest and to pay a penalty equal to the trading profits. Mr. Bohlander consented to the entry of a final judgment requiring him to disgorge the trading profits and pay judgment interest. See also Litig. Rel. 21404 (Feb. 2, 2010).
Levinberg involves a question of duty. The complaint is based on the acquisition of Scopus Video Networks, Ltd, an Israel company with a U.S. subsidiary, whose shares were traded on NASDAQ, by Harmonic Inc. at a substantial premium. The deal went forward under a merger agreement entered into on December 22, 2008 and announced the next day.
In September 2008, Scopus had approached Gilat Satellite Networks, Ltd about being acquired. Defendant Joshua Levinberg is an Executive Vice President of Corporate Development and Business Strategy of Gilat and a resident of Israel. An officer of Scopus made the initial approach to the defendant in an attempted to persuade Gilat to acquire the company. To try to induce a deal, the Scopus officer furnished the defendant with material nonpublic information about the company and its status as a takeover target. There is no allegation that Gilat or defendant agreed to keep the material confidential, although it was labeled as proprietary and a legend stated that it could not be disclosed or reprinted without the permission of Scopus.
The initial approach was not successful. Scopus continued during the fall of 2008, however, to pursue a deal. Those efforts continued through December 2008.
Beginning on October 31, 2008 and continuing through December 17, 2008, defendant purchased 102,172 shares of Scopus at an average cost of $3.56. The purchases were made through an account carried by a brokerage firm in Manhattan for its wholly owned Israeli subsidiary. At the time, Gilat had an insider trading policy.
Following the announcement of the acquisition of Scopus, the share price increased by 41%. Mr. Levinberg made a profit, according to the SEC, of $187,996.48.
To resolve this action Mr. Levinberg consented to the entry of a permanent injunction prohibiting future violations of the antifraud provisions of the Exchange Act. He also agreed to disgorge his trading profits, pay prejudgment interest and a penalty equal to those profits. See also Litig. Rel. 21405 (Feb. 3, 2010).