UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
SECURITIES AND EXCHANGE COMMISSION
JAMES D. LOGAN,
Civil Action No. 03-10480-NG
Plaintiff Securities and Exchange Commission ("Commission") alleges as follows:
- This is an enforcement action for unlawful insider trading in the securities of MicroTouch Systems, Inc. ("MicroTouch") by defendant James D. Logan ("Logan") while MicroTouch was engaged in negotiations leading to the sale of the company.
- Defendant Logan was the founder and chairman of the board of directors of MicroTouch. From November 1999 through November 2000, by attending MicroTouch board of directors meetings and by communicating with MicroTouch's management, Logan knew that MicroTouch was engaged in efforts to sell the company, including that it had engaged in negotiations with Minnesota Mining and Manufacturing Co. ("3M") and Tyco International Ltd. ("Tyco"). In May, June and September 2000, Logan directed the Logan Children's Trust, a defective grantor's trust for the benefit of Logan's three minor children, to purchase 14,000 shares of MicroTouch stock in ten transactions.
- On November 13, 2000, MicroTouch announced that it had entered into a definitive agreement pursuant to which 3M would acquire MicroTouch in a tender offer for MicroTouch's outstanding stock at $21.00 per share. The Logan Children's Trust tendered its shares to 3M for a profit of $177,375.
- Additionally, Logan failed to file the required SEC Forms 4 with the Commission that would have disclosed the Logan Children's Trust's purchases to the public.
- By virtue of the conduct alleged in this Complaint, Logan violated Sections 10(b), 14(e) and 16(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 14e-3 and 16a-3 thereunder. Accordingly, the Commission seeks: (i) entry of a permanent injunction prohibiting Logan from further violations of Sections 10(b), 14(e) and 16(a) and Rules 10b-5, 14e-3 and 16a-3 thereunder; (ii) disgorgement of the profits from his insider trading, plus pre-judgment interest; (iii) the imposition of a civil monetary penalty of up to three times the profits from his insider trading; and (iv) the imposition of a civil monetary penalty for failing to file the required Forms 4.
- The Court has jurisdiction over this action pursuant to Sections 21(e), 21A and 27 of the Exchange Act [15 U.S.C. §§78u, 78u-1 and 78aa]. Many of the acts and practices complained of herein occurred within the District of Massachusetts.
- The Commission brings this action pursuant to the authority conferred upon it by Sections 21(d) and (e) of the Exchange Act [15 U.S.C. §§ 78u(d) and (e)].
- In connection with the conduct described in this Complaint, defendant directly and indirectly has made use of the means or instrumentalities of interstate commerce, of the mails, the facilities of national securities exchanges, and/or of the means and instruments of transportation or communication in interstate commerce.
- Defendant James D. Logan of Candia, New Hampshire, was the founder and first chief executive officer of MicroTouch. In 1996, Logan stepped down after 14 years as chief executive officer and took the title of Chairman of the Board, a position he held at all times until the company was acquired by 3M.
- Logan Children's Trust is a defective grantor's trust established in August 1999. Logan is the grantor of the trust, Logan's three minor children are the beneficiaries, and Logan's mother is the sole trustee.
- MicroTouch Systems, Inc. was a Massachusetts corporation, based in Methuen, Massachusetts. MicroTouch produced touch sensitive and pen sensitive computer screens and electronic whiteboards. During the relevant time period, MicroTouch's stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and traded on the NASDAQ National Market System under the symbol MTSI.
- 3M is a Delaware corporation based in St. Paul, Minnesota. 3M is a diversified company that manufactures consumer, office, health care, industrial, electronics, telecommunications and other products. During the relevant time period, 3M's stock was registered with the Commission pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange under the symbol MMM.
- Tyco is a Bermuda corporation based in Exeter, New Hampshire. Tyco operates multiple divisions, including Elo TouchSystems, a unit of Tyco Electronics, which manufactured touch screen technology in competition with MicroTouch. Tyco's stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and trades on the New York Stock Exchange.
- Beginning in November 1999 and continuing until the public announcement of 3M's tender offer in November 2000, MicroTouch was engaged in secret efforts to sell the company. During this entire period, Logan, as chairman of the board of MicroTouch, was a corporate insider who owed a fiduciary duty to the MicroTouch shareholders not to trade, or direct others to trade, company stock based on material, non-public information. In addition, MicroTouch's corporate insider trading policy prohibited all directors and officers, including Logan, from trading in the company's stock while in possession of material, non-public information.
- In ten separate transactions in May, June and September 2000, the Logan Children's Trust -- acting at Logan's direction -- purchased a total of 14,000 shares of MicroTouch stock.
MicroTouch Begins its Search for a Buyer
- In November 1999, the MicroTouch board of directors decided to hire an investment banker to assist MicroTouch in finding a company to acquire it. In January 2000, the board of directors, including Logan, approved the retention of Broadview International LLC ("Broadview") as the company's investment banker.
- In February 2000, Broadview contacted executives at Tyco, which because of recent acquisitions in the industry, was a likely candidate to acquire MicroTouch. Tyco executives initially expressed interest in a possible acquisition, and on March 6, 2000, Tyco and MicroTouch entered into a non-disclosure agreement governing the exchange of confidential information. Within days, Tyco and MicroTouch executives met to discuss a possible acquisition, and Tyco began conducting preliminary due diligence, a process of gathering information to be used by Tyco in formulating an offer to acquire the company.
- Logan was informed about these events at the March 2000 board meeting and through emails and telephone calls from MicroTouch's CEO.
- On May 18, 2000, at the next regularly scheduled MicroTouch board meeting, MicroTouch's CEO informed the board, including Logan, that Tyco had decided to put due diligence on hold because its acquisition personnel were busy with other deals and could not devote the necessary resources toward pursuing an acquisition of MicroTouch. MicroTouch's CEO further informed the board, including Logan, that Tyco expected to resume its due diligence in August. MicroTouch, meanwhile, remained committed to finding an acquiror and Broadview remained engaged to locate a buyer for MicroTouch.
Logan Directs the Logan Children's Trust to Acquire MicroTouch Stock
- On May 30, 2000, less than two weeks after the May board meeting, Logan called his mother and instructed her to purchase MicroTouch stock for the Logan Children's Trust. The Logan Children's Trust purchased 1,000 shares of MicroTouch stock on each of May 30, 2000, and May 31, 2000 at prices of $8.75 and $8.875 per share, respectively. On June 13, 2000, the Logan Children's Trust purchased an additional 3,000 shares of MicroTouch stock at a price of $9.75 per share. These were the first purchases of MicroTouch stock that the Logan Children's Trust had ever made.
- MicroTouch's insider trading policy required that officers and directors notify MicroTouch's CEO or CFO prior to purchasing or selling MicroTouch stock. Logan failed to notify either the CEO or the CFO prior to directing his mother to purchase the stock for the Logan Children's Trust.
- Section 16(a) of the Exchange Act and Rule 16a-3 thereunder required Logan to disclose the Logan Children's Trust purchases by filing Form 4 with the Commission within ten days after the close of each calender month during which there was a purchase. Logan did not file a Form 4 with the Commission disclosing these purchases.
Tyco and 3M Compete to Acquire MicroTouch
- During June and July 2000, members of the MicroTouch board expressed frustration that the acquisition process was not moving faster, and they questioned whether Broadview was devoting enough attention to the engagement. Broadview responded to these concerns with a two-page letter and written report that was given to Logan at the August 3, 2000 MicroTouch board meeting. In its letter and report, Broadview recommended that after MicroTouch announced its third quarter earnings at the end of October 2000, it would begin an expedited process with a goal of completing the sale of the company within one to three months. The board of directors, including Logan, unanimously agreed with Broadview's recommendation.
- Notwithstanding Broadview's recommendation to limit activity until October, MicroTouch's acquisition activity accelerated after the August 3 board meeting. On August 11, 2000, Tyco personnel telephoned Broadview to say that they were now able to devote resources to the MicroTouch acquisition and were ready to resume due diligence. During the call, Tyco personnel declared their intention to "get it [a deal] done" and told Broadview that they soon would "put [a] strong number on the table." Broadview immediately informed MicroTouch's CEO of the call, and by August 14, MicroTouch's CEO had left a voicemail for Logan informing him that Tyco "had come back to the table."
- After receiving Tyco's call in early August, MicroTouch and Broadview contacted 3M to explore 3M's possible interest in buying MicroTouch. On August 18, 2000, Broadview called a senior executive at 3M. The 3M executive was immediately receptive to the possibility of acquiring MicroTouch.
- Over the next few weeks, Tyco and 3M each conducted due diligence of MicroTouch with a goal of making offers to acquire the company. Tyco's renewed due diligence efforts began on August 25, and in late August and early September, Tyco was working toward a valuation of MicroTouch on which to base an offer. Meanwhile, on August 22, 2000, 3M and MicroTouch entered into a non-disclosure agreement governing the exchange of confidential information, and 3M began its due diligence. On August 30, 2000, senior representatives of 3M and MicroTouch met at MicroTouch's Massachusetts headquarters for an all-day meeting about a possible acquisition. Attendees at the meeting described it as one of the best first meetings they had been involved in and said that it was obvious that 3M wanted to pursue an acquisition of MicroTouch.
- MicroTouch's CEO kept Logan informed of developments in the negotiations with Tyco and 3M through emails or telephone calls. Logan was informed that Tyco had contacted Broadview and had resumed due diligence. He was informed that 3M was contacted and had expressed interest in pursuing an acquisition. Lastly, Logan was informed about the successful August 30 meeting between MicroTouch and 3M and that 3M, like Tyco, was conducting preliminary due diligence.
Logan Directs the Logan Children's Trust to Acquire Additional MicroTouch Stock
- Between August 28, 2000 and September 1, 2000, and after Logan had been updated about developments in the Tyco and 3M negotiations, Logan directed his mother to resume purchasing MicroTouch stock for the Logan Children's Trust. Logan's mother followed her son's instructions. The Logan Children's Trust purchased 1,000 shares of MicroTouch stock on each of September 1, September 6 and September 8, 2000 at prices of $7.375, $7.875 and $8.50 per share, respectively.
- Also on September 8, 2000, Tyco delivered a written offer to acquire MicroTouch through an all-cash tender offer for publicly traded shares of MicroTouch at a price of $16.00 per share. By September 11, 2000, MicroTouch's CEO had informed Logan of the offer. The CEO also told Logan that he, MicroTouch's CFO and Broadview representatives were planning to travel to Minnesota on September 15 to meet with 3M in an effort to persuade 3M to make a competing offer to acquire MicroTouch.
- On September 12 and September 14, 2000, the Logan Children's Trust purchased 1,000 and 2,000 shares of MicroTouch stock at a price of $8.00 and $7.75 per share, respectively.
- Also on September 14, 2000, the assistant of MicroTouch's CEO sent an email to Logan scheduling a special meeting of the MicroTouch board. The purpose of the meeting was to consider Tyco's and, potentially, 3M's offers. On September 15, 2000, MicroTouch executives met with 3M representatives in Minnesota. At the conclusion of the all-day meeting, 3M presented MicroTouch with a preliminary offer to acquire MicroTouch in a tender offer transaction valued at $18 per share.
- Also on September 15, 2000, the Logan Children's Trust purchased 2,000 shares of MicroTouch stock at a price of $7.75 per share.
- Over the next two days, MicroTouch and 3M executives were engaged in additional negotiations. By September 17, 2000, 3M increased its offer to $21 per share. MicroTouch's CEO informed Logan of 3M's offer "first thing" on Monday morning, September 18, 2000. At 1:19 pm on September 18, 2000, the Logan Children's Trust purchased 2,000 shares of MicroTouch stock at a price of $7.375 per share. At some point on September 18, 2000, Logan called his mother and instructed her to stop purchasing MicroTouch stock for the Logan Children's Trust.
- Logan did not file a Form 4 with the Commission disclosing any of the September purchases. Logan further did not inform MicroTouch's CEO or CFO of the September trades as required by the company's insider trading policy.
- On September 20, 2000, MicroTouch held a special meeting of the board of directors to formally consider the offers from Tyco and 3M. After discussion, the board voted that the 3M offer was superior to the Tyco offer and directed MicroTouch management to continue to negotiate specific terms of a tender offer acquisition by 3M.
3M Acquires MicroTouch in a Tender Offer Transaction
- On November 9, 2000, MicroTouch's board of directors formally agreed for the company to be acquired by 3M. On November 13, 2000, after the close of the markets, MicroTouch announced that it had entered into a definitive agreement pursuant to which 3M would acquire MicroTouch in a tender offer for MicroTouch's outstanding shares at $21.00 per share. On the first trading day after the announcement, MicroTouch's stock price increased 38%, from a closing price of $14.88 per share on November 13, 2000 to a closing price of $20.56 on November 14, 2000.
- The tender offer expired at midnight on January 3, 2001, and on January 4, 2001, 3M announced that MicroTouch had become a wholly owned subsidiary of 3M. The Logan Children's Trust tendered all of its 14,000 shares to 3M pursuant to the tender offer, and on January 3, 2001, received proceeds of $294,000, which represented a profit in the amount of $177,375.
(Violations of Exchange Act § 10(b) and Rule 10b-5 thereunder)
- Plaintiff Commission repeats and realleges paragraphs 1 through 36 above.
- In May, June and September 2000, Logan directed his mother to acquire MicroTouch common stock for the Logan Children's Trust. Pursuant to Logan's direction, the Logan Children's Trust accumulated 14,000 shares of MicroTouch stock at a total cost of $116,625. At the time he directed the Logan Children's Trust to accumulate MicroTouch stock, Logan was in possession of material nonpublic information concerning a potential acquisition of MicroTouch by 3M, Tyco or others. By directing the Logan Children's Trust to purchase MicroTouch stock on the basis of his material, nonpublic information, Logan caused the Logan Children's Trust to profit in the amount of $177,375.
- By reason of the foregoing, Logan, singly or in concert with others, directly or indirectly, in connection with the purchase or sale of securities, by the use of the 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 facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (c) engaged in transactions, acts, practices or courses of business which operated as a fraud or deceit upon any persons, including purchasers or sellers of MicroTouch'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].
- Logan's conduct involved fraud, deceit, or deliberate or reckless disregard of regulatory requirements, and resulted in substantial loss or significant risk of substantial loss to other persons, within the meaning of Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)].
(Violations of Exchange Act § 14(e) and Rule 14e-3 thereunder)
- Plaintiff Commission repeats and realleges paragraphs 1 through 40 above.
- As of each time Logan directed his mother to purchase MicroTouch stock on behalf of the Logan Children's Trust, Tyco and/or 3M had taken a substantial step or steps toward commencing a tender offer for MicroTouch securities.
- Logan purchased, or caused the purchase of, securities of MicroTouch while in possession of material information relating to the tender offer, and while knowing or having reason to know the information was nonpublic and had been acquired directly or indirectly from MicroTouch or a person acting on behalf of MicroTouch.
- By the conduct described above, defendant Logan, directly or indirectly, by use of the means or instrumentalities of interstate commerce, the mails, or a facility of a national securities exchange, violated Section 14(e) of the Exchange Act [15 U.S.C. §78n(e)] and Rule 14e-3 [17 C.F.R. §240.14e-3] promulgated thereunder.
(Violations of Exchange Act § 16(a) and Rule 16a-3 thereunder)
- Plaintiff Commission repeats and realleges paragraphs 1 through 44 above.
- Section 16(a) of the Exchange Act and Rule 16a-3 thereunder require that any director of a company whose stock is registered under Section 12 of the Exchange Act must notify the Commission if there has been a change in such director's beneficial ownership of company stock by filing a statement indicating such changes with the Commission. Exchange Act Rule 16a-3 requires that statements of changes in beneficial ownership be filed on Form 4 within ten days after the close of each calender month during which there has been a change.
- Logan was a director of MicroTouch. Logan is deemed to be the beneficial owner of securities held by the Logan Children's Trust because such securities are held for the benefit of Logan's minor children.
- Logan failed to file with the Commission Forms 4 within the first ten days of June, July and October 2000 disclosing the Logan Children's Trust's purchases of MicroTouch stock in May, June and September 2000, respectively. Accordingly, Logan violated Section 16(a) and Rule 16a-3 thereunder.
- By reason of the foregoing, Logan violated Section 16(a) of the Exchange Act [15 U.S.C. §78p(a)] and Rule 16a-3 [17 C.F.R. §240.16a-3] promulgated thereunder.
PRAYER FOR RELIEF
WHEREFORE, the Commission requests that the Court issue a final judgment:
- Permanently enjoining Logan and each of his agents, servants, employees and attorneys and those persons in active concert or participation with them, who receive actual notice of the injunction by personal service or otherwise, including facsimile transmission or overnight delivery service, from engaging, directly or indirectly, in violations 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];
- Section 14(e) of the Exchange Act [15 U.S.C. §78n(3)] and Rule 14e-3 thereunder [17 C.F.R. §240.14e-3];
- Section 16(a) of the Exchange Act [15 U.S.C. §78p(a)] and Rule 16a-3 thereunder [17 C.F.R. §240.16a-3];
- Ordering Logan to pay an appropriate civil monetary penalty pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. §78u(d)(3)];
- Ordering Logan to disgorge all ill-gotten gains, plus prejudgment interest thereon; and
- Awarding such other and further relief as the Court deems just and proper.
JUAN MARCEL MARCELINO
Linda B. Bridgman (DC Bar No. 304824)
District Trial Counsel
Ian D. Roffman (BBO # 637564)
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
73 Tremont Street, Suite 600
Boston, MA 02108
(617) 424-5929 (Bridgman)
(617) 424-5900 ext. 119 (Roffman)
(617) 424-5940 fax