United States Securities and Exchange Commission
Securities Exchange Act of 1934
Release No. 46871 / November 21, 2002
Investment Advisers Act of 1940
Release No. 2084 / November 21, 2002
File No. 3-10945
SEC Institutes Administrative Proceeding Against Sharad Kapoor Based on Entry of Injunction
The Securities and Exchange Commission today instituted an administrative proceeding against Sharad Kapoor ("Kapoor"), a former stockbroker, based on the entry of an injunction against him in Securities and Exchange Commission v. Arjun Sekhri, et al., 98 Civ. 2320 (RPP) (S.D.N.Y.). In the Order Instituting Public Administrative Proceedings Pursuant to Sections 15(b)(6) and 15B(c)(4) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940 ("Order"), the Division of Enforcement alleges that, between June 1993 and May 1998, Kapoor was associated with Merrill Lynch Pierce, Fenner & Smith, Inc., a registered broker, dealer, municipal securities dealer, and investment adviser.
According to the Order, on April 1, 1998, the Commission filed a Complaint in the United States District Court for the Southern District of New York alleging that several individuals made total profits of approximately $2.5 million from their unlawful insider trading in the common stock and/or call options on the stock of (i) MCI Communications Corp. ("MCI"); (ii) Brooks Fiber Properties, Inc. ("BFP"); (iii) Carson Pirie Scott & Co., Inc. ("CPS"); (iv) Central and South West, Corp.; and (v) Southern New England Telecommunications Corp. ("SNET"). The Complaint was amended on April 15, 1998 and May 19, 1998 to charge additional defendants, including Kapoor, with violations of Sections 10(b) and 14(e) of the Securities and Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder.
According to the allegations in the Order, on July 22, 2002, Judge Robert P. Patterson, Jr. of the Southern District of New York entered final judgments granting the Commission's motion for summary judgment against Kapoor and his wife, Rohina Sharma. The Court found that, between September 1997 and January 1998, Kapoor and Sharma had engaged in insider trading in the securities of MCI, BFP, CPS, and SNET, in advance of five merger and acquisition announcements concerning these companies. Based on its findings, the Court permanently enjoined Kapoor from future violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3, and ordered him to pay disgorgement of $294,418.94, to pay prejudgment interest of $115,838.21, and to pay maximum civil penalties of $883,256.82. Kapoor's disgorgement, prejudgment interest, and civil penalties were based on the profits made by Kapoor's clients and his friend Pratima Rajan. The Court also entered a permanent injunction against Sharma based on the same statutory provisions and ordered her to disgorge $58,322.61 in trading profits, to pay prejudgment interest of $22,946.83, and to pay maximum civil penalties of $174,967.83.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Kapoor an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate and in the public interest.
For further information, see Litigation Release No. 17632 (July 25, 2002).