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U.S. Securities and Exchange Commission

United States District Court
for the District of Massachusetts


Securities and Exchange Commission,
 
             Plaintiff,
 
       v.
 
Robert Williams,
 
             Defendant.


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Civil Action No. __________
 

Complaint

Plaintiff, the United States Securities and Exchange Commission (the "Commission") alleges that:

Summary

  1. This matter involves Robert Williams' illegal insider trading in the securities of Waters Corporation ("Waters" or the "company") while he was Chairman of Micromass UK Ltd. ("Micromass"), a wholly-owned subsidiary of Waters. Williams sold 10,000 shares of Waters common stock just hours before Waters' June 18, 2001, announcement that its earnings for the second quarter of fiscal 2001 would be substantially lower than it previously had forecast due to lower than expected sales at Micromass. Williams learned about this shortfall by no later than June 12, 2001, when top level executives from Waters met with Williams and other top level executives from Micromass to review business operations. On June 18, Williams exercised options to purchase 10,000 shares of Waters stock at $10.6875 per share and sold all of those shares at $42.3659 per share, realizing a profit of $316,784. After the close of the market on June 18, Waters issued its negative earnings announcement, causing Waters' stock price to decline approximately 30%, from $42.57 at market closing on June 18, to $32.00 at opening on June 19. Through his illegal insider trading, Williams avoided a loss of $103,659.
     

  2.  
  3. By virtue of his conduct, Williams violated Section 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77q(a)] and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. Accordingly, the Commission seeks entry of a permanent injunction against Williams prohibiting him from future violations of the federal securities laws. The Commission also seeks equitable disgorgement in an appropriate amount equal to the loss avoided resulting from Williams' illegal trading, plus prejudgment interest thereon, and civil monetary penalties of up to three times the amount of the loss avoided.

Jurisdiction

  1. The Commission brings this action pursuant to the enforcement authority conferred upon it by Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)] and Sections 21(d) and 21A of the Exchange Act [15 U.S.C. §§ 78u(d) and 78u-1].
     
  2. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)] and Sections 21(e), 21A and 27 of the Exchange Act [15 U.S.C. §§ 78u(e), 78u-1 and 78aa].
     
  3. Williams, directly or indirectly, has made use of the means and instrumentalities of interstate commerce, of the mails, of the facilities of a national securities exchange, and/or of the means and instruments of transportation or communication in interstate commerce, in connection with the acts, practices, transactions, and courses of business alleged herein.
     
  4. Williams, unless enjoined, will continue to engage in the acts, practices, transactions, and courses of business alleged herein, or in acts, practices, and courses of business of similar object and purpose.

The Defendant And Relevant Entity

  1. Williams is a resident of Brighton, England. At all relevant times, Williams was Chairman of Micromass UK Ltd., a wholly-owned subsidiary of Waters headquartered in Manchester, England.
     
  2. At all relevant times, Waters was a Delaware corporation headquartered in Milford, Massachusetts, that manufactures and sells high-end analytical instruments. At all relevant times, Waters' stock was registered with the Commission under Section 12(b) of the Exchange Act and was traded on the New York Stock Exchange. Waters' fiscal year ends on December 31, and the quarter ended June 30, 2001, was Waters' second quarter for fiscal 2001.

Facts

Background

  1. Micromass develops, manufactures and distributes mass spectrometry instruments.
     
  2. On or about September 23, 1997, Waters acquired all of the capital stock of Micromass for approximately $175 million in cash, common stock and promissory notes.
     
  3. After Waters' acquisition of Micromass, Waters retained Williams as Micromass' chairman.
     
  4. Throughout the relevant time period, Williams acted as a senior executive at Micromass. Throughout the relevant time period, Williams was regularly provided Micromass financial data, and he regularly attended mid-year and year-end budget and financial review meetings with U.S. Waters executives at which they discussed Micromass' financial results and projections, including the subsidiary's revenues, sales, orders, production, profit and loss and balance sheet.
     
  5. In June 2001, Williams knew that Micromass' sales and earnings figures constituted approximately 30% of Waters' sales and earnings. He also knew that Micromass had been an important growth driver for Waters for several years, with revenues increasing from approximately 20% of the company's total revenues in late 1997 to approximately 30% by 2001. He also knew that sales by other Waters divisions were much more predictable than sales of Micromass products, and thus that it was unlikely that other Waters divisions would be able to make up a significant Micromass sales budget shortfall.

Williams's Acquisition of Material, Nonpublic Information

  1. On June 12 and 13, 2001, several senior Waters executives from Waters' U.S. headquarters attended a mid-year Micromass business review meeting at Micromass' offices in Manchester, England.
     
  2. Most of the day on June 12 was devoted to a detailed financial presentation by Micromass' financial director concerning Micromass' second quarter orders and sales.
     
  3. During the presentation of Micromass' financial director, which took over four hours to complete, Williams and the other executives heard detailed information regarding a substantial slowdown in both orders for and sales of Micromass' mass spectrometry equipment in the second quarter.
     
  4. Micromass' financial director distributed to each of the individuals present at the meeting, including Williams, information packets containing photocopies of the twenty-nine financial tables that he utilized during his presentation.
     
  5. During the presentation by Micromass' financial director, Waters' former CFO reminded those who were present that the information that they were hearing was confidential and private data which should not be shared with anyone outside the room.
     
  6. During his presentation, Micromass' financial director reported that orders for, and sales of, Micromass' mass spectrometry instruments product line had slowed substantially during the second quarter of 2001.
     
  7. Prior to the second quarter of 2001, Waters' budget had anticipated that Micromass would achieve $83.7 million in mass spectrometry instruments orders and $79.1 million in sales during the quarter.
     
  8. Micromass' financial director reported during his June 12 presentation that Micromass would actually achieve only $66.6 million in orders and $66.6 million in sales during the quarter. As a result, Micromass' financial director reported that Micromass expected a $17.1 million, or 20.4%, budget shortfall in orders for the quarter, and a $12.5 million, or 15.8%, budget shortfall in sales for the quarter.
     
  9. The $12.5 million sales budget shortfall equaled approximately 6% of Waters' total quarterly sales reported in both the first and second quarters of 2001.
     
  10. The budget shortfalls in sales and orders reported by Micromass' financial director on June 12 had a material impact upon Waters' earnings for the second quarter.
     
  11. Micromass had been an important growth driver for Waters for several years, with revenues increasing from approximately 20% of the company's total revenues in late 1997 to approximately 30% by 2001. During that same period, Micromass had never failed to meet its revenue targets. During that same period, sales by other Waters divisions were much more predictable than sales of Micromass products, and thus it was unlikely that other Waters divisions would be able to make up a significant Micromass sales budget shortfall.
     
  12. The information that Micromass' financial director presented during the June 12 meeting regarding Micromass' 20.4% budget shortfall in orders and 15.8% budget shortfall in sales in the second quarter of Fiscal Year 2001 constituted material, nonpublic information about Waters.
     
  13. After the presentation of Micromass' financial director on June 12, Williams knew the magnitude of Micromass' second quarter orders and sales budget shortfalls.
     
  14. After the presentation of Micromass' financial director on June 12, Williams knew, or was reckless in not knowing, the impact that the Micromass orders and sales budget shortfall would have upon Waters' overall revenues and earnings for the second quarter.
     
  15. Williams also knew, or was reckless in not knowing, that the information that he learned during the June 12 presentation concerning Micromass' second quarter orders and sales budget shortfalls constituted material, nonpublic information about Waters.

Waters' Earnings Warning

  1. In or around April 2001, Waters previously had forecast estimates for the second quarter for sales growth before currency effects of between 14% and 16%, for sales growth after currency effects of between 10% and 12%, and for earnings per diluted share of $0.33.
     
  2. Shortly after the June 12-13, 2001, meetings at Micromass, Waters' U.S. executives decided, based upon the information they had learned about the Micromass budget shortfall, that it was necessary for the company to issue a corrective press release providing a revised outlook for the company's revenue growth and earnings in the second quarter of 2001.
     
  3. After the close of the market on Monday, June 18, 2001, Waters issued a press release in which it reported that sales growth related to its mass spectrometry product line had slowed significantly in the second quarter of 2001.
     
  4. In the June 18 press release, Waters revised its prior estimates for sales growth before currency effects down to between 7% and 10%, for sales growth after currency effects down to between 2% and 5%, and for earnings per diluted share of $0.29.
     
  5. At the close of the market on June 18, Waters stock stood at $42.57 per share.
     
  6. When the market opened on June 19, after Waters' press release, Waters' stock price declined approximately 30% to open at $32.00 per share.

Williams' Insider Trading

  1. As a Waters employee, Williams participated in the Waters Long-Term Performance Incentive Plan (the "Incentive Plan"), pursuant to which he received Waters stock options at the end of each year.
     
  2. On March 1, 2001, Williams placed a conditional order with a broker in Boston to exercise 10,000 Waters stock options and a limit order to sell those shares at a limit price of at least $70 per share. This conditional limit sale order expired without being executed on April 2, 2001. On June 6, 2001, Williams placed a conditional order with a broker in Boston to exercise 10,000 Waters options and a limit order to sell those shares at a limit price of at least $55 per share. On June 6, 2001, Waters stock was trading at $51.00 per share. Between June 6 and June 18, Waters' stock price never rose to at least $55 per share and, as a result, Williams June 6 conditional order was never executed.
     
  3. On June 18, 2001, prior to Waters' press release that same day regarding the slowdown in sales of Micromass' mass spectrometry product line, Williams called the broker in Boston, exercised the 10,000 Waters stock options at an exercise price of $10.6875 per share, and converted his limit sale order to a market sale order.
     
  4. The sale was executed later that day at $42.3659 per share, resulting in a profit for Williams of approximately $316,784 on the trade, before brokerage costs.
     
  5. Williams avoided a loss of approximately $103,659 by trading prior to the release of the negative news concerning the dramatic budget shortfall in Micromass sales.
     
  6. Williams converted his limit order to a market sale order just four business days after he had participated in the June 12 meeting at which Micromass' financial director made his presentation.
     
  7. Williams placed his order to sell 10,000 shares of Waters stock while in possession of material, nonpublic information concerning Micromass' second quarter orders and sales budget shortfalls.
     
  8. When Williams placed his order to sell 10,000 shares of Waters stock, he knew, or was reckless in not knowing, that the information he possessed concerning Micromass' second quarter orders and sales budget shortfalls constituted nonpublic information about Waters.

Williams Violated Waters' Insider Trading Policy and
Breached His Duty

  1. As chairman of Micromass, Williams was at all relevant times a senior employee of Waters and owed a duty of confidentiality to the company, and to its shareholders, not to disclose or use material nonpublic information for his personal gain, including the information about the Micromass second quarter orders and sales budget shortfall, and the impact that budget shortfall would have upon Waters' revenues and earnings for the second quarter.
     
  2. From approximately 1998 through at least June 2001, Waters had a written policy prohibiting all of its employees from trading Waters stock while in the possession of material, nonpublic information. As a Waters employee, Williams was subject to this policy.
     
  3. Williams' June 18, 2001, sale of Waters stock was in direct violation of Waters' longstanding insider trading policy because he made the trade while in the possession of material, nonpublic information concerning the substantial budget shortfall in Micromass orders and sales for the second quarter of 2001.

FIRST CLAIM
Unlawful Insider Trading
(Violation of Securities Act § 17(a))

The Commission repeats and realleges Paragraphs 1 through 45 above.

  1. On June 18, 2001, Williams, while in possession of information that he knew, or was reckless in not knowing, was material and nonpublic, used that information when he sold his shares of Waters securities.
     
  2. By reason of the foregoing, Williams, singly or in concert with others, directly or indirectly, in the offer or sale of securities, by the use of means or instruments of transportation or communication in interstate commerce or by the use of the mails: (a) employed devices, schemes or artifices to defraud; (b) obtained money or property by means of untrue statements of material fact or omissions 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; or (c) engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon the purchaser of securities in violation of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].

SECOND CLAIM
Unlawful Insider Trading
(Violation of Exchange Act § 10(b) and Rule 10b-5)

The Commission repeats and realleges Paragraphs 1 through 47 above.

  1. On or about June 18, 2001, Williams, while in possession of information that he knew, or was reckless in not knowing, was material and nonpublic, used that information when he sold his shares of Waters securities.
     
  2. By reason of the foregoing, Williams, singly or in concert with others, directly or indirectly, in connection with the purchase or sale of securities, by the use of means and instrumentalities of interstate commerce, or of the mails, or any facility of any national securities exchange: (a) employed devices, schemes, or artifices to defraud; (b) made untrue statements of material fact or 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; or (c) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon any persons, including purchasers or sellers of Water's securities in violation of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that this Court:

I.

Issue a Final Judgment of Permanent Injunction permanently restraining and enjoining Williams, his agents, servants, employees, attorneys, successors and assigns, and each of them, and all persons in active concert or participation with them, and each of them who receive actual notice of the Final Judgment by personal service or otherwise, from directly, or indirectly, violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)] and Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder.

II.

Issue an Order requiring Williams to pay disgorgement of the loss avoided resulting from his illegal trading, plus prejudgment interest thereon.

III.

Issue an Order requiring Williams to pay civil penalties under the Insider Trading Sanctions Act of 1984, codified at Section 21A of the Exchange Act, as amended [15 U.S.C. § 78u-1(a)], of up to three times the amount of the loss avoided resulting from his illegal trading.

IV.

Grant such other relief as this Court deems just and equitable under the circumstances.

  Respectfully submitted,
 
THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
 
By its attorneys
 
________________________
 
Juan Marcel Marcelino
District Administrator
 
Martin Healey (BBO #227550)
Senior Trial Counsel
 
Gregory S. Gilman (BBO #559106)
Senior Staff Attorney
 
Securities and Exchange Commission
Boston District Office
73 Tremont Street, 6th Floor
Boston, Massachusetts 02108
(617) 424-5900 ext. 204 (Healey)

Dated:    January 15, 2003

 

http://www.sec.gov/litigation/complaints/comp17932.htm

Modified: 01/17/2003