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IN THE UNITED STATES DISTRICT COURT
COMPLAINT FOR PERMANENT INJUNCTION AND OTHER EQUITABLE RELIEF Plaintiff, Securities and Exchange Commission ("Plaintiff" or "Commission"), alleges the following: NATURE OF THE COMPLAINT 1. The case involves insider trading by Terry Kirch ("Kirch"), a software executive who misappropriated confidential information from an executive of another company at an executive roundtable conference. From September 30, 1999 to October 1,1999, Kirch, a then Chief Executive Officer ("CEO") of a private software company, attended a meeting of software executives from various companies ("Executive Roundtable"). It was a specific policy and understanding of this Executive Roundtable that matters of a confidential or sensitive nature were to be kept confidential. During this meeting, ShowCase Corporation's ("ShowCase") CEO made a presentation at the Executive Roundtable disclosing that ShowCase would not meet analysts' projections for the second quarter. Shortly after this presentation, Kirch called his broker and placed an order to sell certain of his shares of ShowCase. By selling when he did, Kirch avoided losses of approximately $45,688. 2. Kirch, directly and indirectly, has engaged and, unless enjoined, will continue to engage in acts, practices and courses of business which constitute and will constitute violations of Section 17(a) of the Securities Act of 1933 ("Securities Act")[15 U.S.C.§77q(a)], Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §78j(b)], and Rule 10b-5 [17 C.F.R. §240.10b-5] promulgated thereunder. 3. Plaintiff brings this action to enjoin such acts, practices and courses of business, and for other equitable relief, pursuant to Section 20(b) of the Securities Act [15 U.S.C. §77t(b)] and Sections 21(d), 21(e) and 21A of the Exchange Act [15 U.S.C. §§78u(d), 78u(e) and 78u-1(a)]. JURISDICTION 4. The Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act [15 U.S.C. §77v(a)] and Sections 21 and 27 of the Exchange Act [15 U.S.C. §§78u and 78aa]. 5. Defendant will, directly and indirectly, unless enjoined, have the opportunity to engage in the acts, practices and courses of business set forth in this Complaint and in acts, practices and courses of business of similar purport and object. 6. The acts, practices and courses of business constituting the violations herein have occurred within the jurisdiction of the United States District Court for the Northern District of Illinois and elsewhere. 7. Defendant, directly and indirectly, has made use of the means and instrumentalities of interstate commerce and of the mails in connection with the acts, practices and courses of business alleged herein within the jurisdiction of the Northern District of Illinois and elsewhere. THE DEFENDANT 8. At all times relevant herein, Defendant Kirch, who is 54 years old, lived in or near Naperville, Illinois. At all times relevant herein, Defendant Kirch was President and CEO of Resource Information Management Systems, an Illinois corporation. ENTITIES INVOLVED 9. At the time of the misconduct, ShowCase made database analysis software and was headquartered in Rochester, Minnesota. ShowCase was a publicly traded company whose shares were traded on NASDAQ. On or about October 4, 1999, ShowCase publicly issued its preliminary earning release regarding its second quarter financial results. These results indicated that revenues for the fiscal second quarter ended September 30, 1999 would be approximately $8.0 to $8.5 million dollars, resulting in a loss of approximately $1.6 to $1.8 million dollars, or approximately $0.16 to $0.18 per basic share. FACTS I. Background 10. During the relevant time period, Defendant Kirch belonged to a group of chief executive officers of software companies. This group consisted of about ten software organizations or former software organizations. During the relevant time period, the Executive Roundtable met semi-annually to discuss ideas and strategies. During the relevant time period, the President and CEO of ShowCase was also a member of the Executive Roundtable. 11. At all times relevant herein, it was a definite policy and fundamental understanding of the Executive Roundtable that matters of a confidential or sensitive nature were to be kept confidential. 12. At all times relevant herein, Kirch was aware of this policy and testified under oath during the Commission's investigation that he agreed it "was a definite policy of fundamental understanding of the Software round table in matters of [a] confidential or sensitive nature were to be kept confidential." II. The ShowCase Trade 13. From September 30, 1999 to October 2, 1999, there was an Executive Roundtable meeting held at the Inn at National Hall in Westport, Connecticut. On October 1, 1999, the Executive Roundtable discussions began at approximately 8:00 a.m. eastern standard time ("EST"). Kirch was present for the October 1, 1999 Executive Roundtable discussion. Between approximately 10:15 to 11:00 a.m. EST on October 1, 1999, ShowCase's CEO, Kenneth Holec ("Holec"), gave a presentation to the Executive Roundtable concerning ShowCase. Kirch was present for this discussion. Holec began his presentation by stating that the information he was going to present was confidential and had not yet been publicly announced. Holec's presentation lasted approximately 20-30 minutes and included a discussion of the fact that ShowCase would not make its earning projections for the second quarter of 1999. 14. Holec presented the confidential information about ShowCase to the Executive Roundtable as he was seeking their input as to how to publicly announce the information and how to deal with employee and customer concerns. 15. On October 1, 1999, at approximately 11:42 a.m. EST, and shortly after Holec's presentation, Kirch called his broker and placed an order to sell 8,500 shares of ShowCase, representing more than half of his stock holdings in the company that he previously acquired. At the time he placed this order, Kirch was in possession of nonpublic, material information concerning ShowCase. Specifically, Kirch knew that ShowCase would not make its earnings projections for the second quarter of 1999. 16. On or about October 4, 1999, ShowCase publicly issued its preliminary earning release regarding its second quarter financial results. These results indicated that revenues for the fiscal second quarter ended September 30, 1999 would be approximately $8.0 to $8.5 million dollars, resulting in a loss of approximately $1.6 to $1.8 million dollars, or approximately $0.16 to $0.18 per basic share. On October 4, 1999, immediately prior to this announcement, ShowCase's shares closed at $9.50 per share. On October 5, 1999, the day after the public announcement, ShowCase's shares closed at $4.00 per share, down $5.50 per share, or approximately 56%. By selling on October 1, 1999, Kirch avoided losses of approximately $45,688. III. Kirch Lied Repeatedly To Avoid Liability For His Illegal Trading 17. Shortly after ShowCase's October 1999 announcement regarding negative earnings, the NASD began an inquiry and contacted Holec, ShowCase's CEO, with a list of persons who made suspicious trades prior to the announcement. Holec identified Kirch's name on the list. Holec then called Kirch and asked about the trade. In response, Kirch falsely assured Holec that the stock was sold "the day or night before" Holec's roundtable presentation. 18. During testimony before officers of the Commission, Kirch was asked about the timing of his sale. In response, Kirch insisted that he called his broker and placed the sell order "early in the morning" of the day of the roundtable, contradicting his prior statement to Holec. Kirch also stated that records of his calling cards would substantiate his statements regarding when he called his broker to sell his ShowCase stock. Kirch, however, never produced any such documents. Instead, the telephone records that the Commission staff later obtained indicated that Kirch made the call at 11:42 a.m. EST that day, after Holec's presentation, and not in the "early morning." 19. Kirch misrepresented facts regarding his reason for selling the ShowCase stock. In his testimony to the staff, Kirch falsely claimed that that he decided to sell his ShowCase stock in part to raise funds to meet financial obligations for some of his other investments. In particular, Kirch claimed he was periodically obligated to provide funds to two corporations in which he was a private investor. According to Kirch, as part of his contractual obligations, he had to provide additional funds when he received "capital calls," i.e., written requests for funds, from the corporations. Kirch claimed in testimony that he received these capital calls prior to the Executive Roundtable in Connecticut. In reality, with regard to one corporation, Kirch did not receive the written capital call until October 6, 1999, several days after Kirch sold his Showcase shares. With regard to his other investment, there was no contractual obligation involving "capital calls." Instead, Kirch became an investor by entering into a stock purchase agreement with the corporation. Significantly, Kirch's $25,000 investment was due on November 2, 1999, a month after Kirch sold the stock. Further, account documents showed that at the time of his sale of ShowCase stock, Kirch had more than enough proceeds to pay for these later obligations. 20. Ultimately, when confronted with evidence, Kirch submitted an affidavit to the Commission staff stating that he was "confused" about his recollection during the testimony. In addition, he stated in his affidavit that he now believes the trade took place in the "late morning" of the day of the roundtable presentation, thus, amending his prior testimony. Kirch further states: Upon further reflection, examination of my records and the transcript of my testimony, I am unable to say whether anything I heard at the meeting influenced or otherwise confirmed my decision to sell a portion of my holdings in Showcase, but it is possible that information received at that session confirmed my decision to sell. COUNT I Violations of Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 [17 C.F.R. §240.10b-5] promulgated thereunder 21. Paragraphs 1 through 20 are realleged and incorporated by reference herein. 22. During the relevant time period, Defendant Kirch in connection with the purchase and sale of securities, namely the securities of ShowCase, and by the use of the means and instrumentalities of interstate commerce and by the use of the mails, directly and indirectly, employed devices, schemes and artifices to defraud, made untrue statements of material fact and omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, and engaged in acts, practices and courses of business which operated and would operate as a fraud and deceit upon purchasers and prospective purchasers of the securities. 23. As part of his conduct, Defendant Kirch sold shares of ShowCase while in possession of material, nonpublic information regarding ShowCase and while he knew or should have known that the information was obtained as a result of a breach of a duty to the Executive Roundtable as described in Paragraphs 21 through 22 above. 24. As a result of the activities described in Paragraphs 21 through 23 above, Defendant Kirch violated Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 [17 C.F.R. §240.10b-5] promulgated thereunder. COUNT II Violations of Section 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)] 25. Paragraphs 1 through 24 are realleged and incorporated by reference. 26. At all times alleged in this Complaint, Defendant Kirch, in the offer and sale of securities, namely the securities of ShowCase, by the use of the means and instruments of transportation and communication in interstate commerce and by the use of the mails, directly and indirectly, employed devices, schemes and artifices to defraud. 27. As part of his conduct, Defendant Kirch sold shares of ShowCase while in possession of material, nonpublic information regarding ShowCase and while he know or should have known that the information was obtained as a result of a breach of a duty to the Executive Roundtable as described in paragraphs 25 through 26 above. 28. As a result of the activities described in Paragraphs 25 through 27 above, Defendant Kirch violated 17(a)(1) of the Securities Act [15 U.S.C. § 77q(a)(1)]. COUNT III Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act
29. Paragraphs 1 through 28 are realleged and incorporated by reference. 30. At all times alleged in this Complaint, Defendants Kirch, in the offer and sale of securities, namely the securities of ShowCase, by the use of the means and instruments of transportation and communication in interstate commerce and by the use of the mails, directly and indirectly, obtained property by means of untrue statements of material fact or omissions to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, and engaged in transactions, practices or courses of business that operated as a fraud and deceit upon investors. 31. As a result of the activities described in Paragraphs 29 through 30 above, Defendants Kirch violated Sections 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)]. RELIEF REQUESTED THEREFORE, the Plaintiff respectfully requests that this Court: I. Find that Defendant Kirch committed the violations alleged above. II. Grant a Final Judgment and an Order of Permanent Injunction and Other Equitable Relief ("Final Judgment"), in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, enjoining Defendant Kirch, his officers, agents, servants, employees, assigns, attorneys and those persons in active concert or participation with him who receive actual notice of the Final Judgment by personal service or otherwise, and each of them, from, directly or indirectly, as principals or aiders and abettors, by the use of the mails or any means or instrumentalities of interstate commerce, engaging in the unlawful acts, practices or courses of business described above, or any conduct of similar purport or object, in connection with the transactions in the securities described in this Complaint or any other security, including violations of Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 [17 C.F.R. §240.10b-5] promulgated thereunder. III. Grant a Final Judgment and an Order of Permanent Injunction and Other Equitable Relief, in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, enjoining Defendant Kirch, his officers, agents, servants, employees, assigns, attorneys and those persons in active concert or participation with him who receive actual notice of the Final Judgment by personal service or otherwise, and each of them, from, directly or indirectly, as principals or aiders and abettors, by the use of mails or any means or instrumentalities of interstate commerce, engaging in the unlawful acts, practices or courses of business described above, or any conduct of similar purport and object, in connection with the transactions in the securities described in this Complaint or any other security, including violations of Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(1), 77q(a)(2) and 77q(a)(3)]. IV. Grant a Final Judgment requiring Defendant Kirch to disgorge all illegal gains resulting from his violations plus prejudgment interest. V. Grant a Final Judgment requiring Defendant Kirch to pay to the Plaintiff Commission a civil penalty pursuant to Section 21A of the Exchange Act [15 U.S.C. §78u-1]. VI. Retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that may be entered or to entertain any suitable application or motion for additional relief within the jurisdiction of this Court. VII. Grant an Order for such further relief as the Court may deem appropriate.
Dated: October 7, 2002 http://www.sec.gov/litigation/complaints/comp17777.htm
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