IN THE UNITED STATES DISTRICT COURT
Securities and Exchange Commission,
GREGORY D. FRAZIER and
Civil Action No.
Plaintiff, Securities & Exchange Commission ("Commission"), alleges as follows:
1. This case involves unlawful insider trading in the stock of Howell Corporation, a company with stock traded on the New York Stock Exchange. Defendant Gregory D. Frazier ("Frazier"), in his capacity as Manager of U.S. Acquisitions for Anadarko Petroleum Company ("Anadarko"), bought shares of Howell, based upon material non-public information concerning Anadarko's plan to acquire Howell. Frazier tipped his brother-in-law, Defendant Stephen A. Hamrick ("Hamrick"), who also purchased shares of Howell, with the knowledge that he was using material non-public information. Shortly after Anadarko announced the acquisition of Howell, Frazier and Hamrick sold their Howell stock at a substantial profit.
2. By virtue of the conduct described in this Complaint, Frazier and Hamrick, directly and indirectly, engaged in acts, practices, and courses of business in violation of 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].
3. The Commission brings this action, pursuant to Section 21(d) and 21A of the Exchange Act [15 U.S.C. §§ 78u(d) and 78u-1(a)] for an order permanently restraining and enjoining the Defendants, ordering disgorgement of unlawful profits, and imposing civil penalties.
4. This Court has jurisdiction pursuant to Section 21 and 27 of the Exchange Act [15 U.S.C. §§ 78u and 78aa]. Pursuant to Section 27 of the Exchange Act [15 U.S.C. § 78aa], this Court has venue over this action because transactions, acts, practices and courses of business described below occurred within the jurisdiction of the Southern District of Texas.
5. Anadarko, headquartered in The Woodlands, Texas, is a Texas corporation involved in oil and gas exploration. Anadarko's securities are registered with the Commission pursuant to Section 12(b) of the Exchange Act and its stock trades on the NYSE under the symbol "APC".
6. Howell was a Delaware corporation with its principal place of business in Houston, Texas. Before Anadarko acquired Howell, its securities traded on the NYSE under the symbol "HWL" and it was registered with the Commission pursuant to Section 12(g) of the Exchange Act. Howell's stock ceased trading on December 9, 2002 and, on December 10, 2002, it filed a notice of termination of its Section 12(g) registration.
7. Gregory D. Frazier, age 52, is a petroleum engineer who resides in The Woodlands, Texas. From February 2002 through November 8, 2002, he worked for Anadarko as the Manager of U.S. Acquisitions. Frazier is currently employed as a petroleum engineer by a privately held company located in The Woodlands, Texas.
8. Stephen A. Hamrick, age 50, resides in The Woodlands, Texas and is married to Frazier's sister. Although he has been unemployed since February 2002, Hamrick has worked as a salesman for various computer and software providers in the Houston, Texas area for the last 10 years. From 1980 to 1987, Hamrick was a registered representative with various broker-dealers registered with the Commission. In 1991, the American Stock Exchange ("AMEX") censured and barred Hamrick from association with any AMEX member or member organization for five years based upon sales practice violations.
9. On May 1, 2002, Anadarko expressed its interest in acquiring Howell, and on May 13th Anadarko and Howell entered into a confidentiality agreement. Throughout the summer, Howell was the only acquisition candidate under serious consideration by Anadarko.
10. Frazier was Manager of U.S. Acquisitions Group, one of the units that comprised Anadarko's Acquisitions and Divestiture Department ("A&D Department"). When Frazier commenced his employment with Anadarko, he acknowledged in writing that he had been told that the Anadarko Employee Handbook was located on the company's Intranet site. The Employee Handbook included Anadarko's insider trading policy. Additionally, Frazier signed an acknowledgement that he agreed not to use private, confidential information obtained in the course of his employment outside of his work for Anadarko.
11. Although Frazier was not assigned to the Howell acquisition, the Anadarko A&D Department was a small unit comprised of only 12 persons. Throughout the summer of 2002, colleagues in nearby offices were performing various aspects of due diligence concerning the potential acquisition of Howell. Moreover, after Howell rejected Anadarko's initial offer in June 2002, Frazier's department evaluated whether to sell certain Anadarko properties to generate funds for the possible acquisition of Howell. During July, Frazier attended at least four meetings in which efforts to acquire Howell were discussed. In September, Frazier began to receive weekly status reports on the acquisition, which contained the admonition that "corporate deals are highly confidential."
12. After Howell rejected Anadarko's initial offer of $18 per share on June 20, 2002, numerous communications took place between the companies, as Anadarko evaluated whether to raise its offer. On September 20th, Anadarko increased its offer to $20.75 in cash and Howell management agreed to recommend that its board of directors accept this offer. Another member of the A&D Department confirmed to Frazier on September 15th that Anadarko wanted to acquire Howell, and by September 25th, that the acquisition was likely.
13. Anadarko and Howell finalized the acquisition agreement on September 27th and executed it on September 29th. The next day, Anadarko issued a public announcement of the acquisition and Howell's stock closed at $20.53, up 51 percent, with trading volume increasing by 892,300 shares from the previous day.
14. Frazier purchased 4,000 shares of Howell on September 2nd. On September 26th, the day after he was told that Howell's acquisition was likely, Frazier began purchasing additional shares of Howell stock. Within two days, Frazier doubled his holdings of Howell by purchasing an additional 4,000 shares. The day of the acquisition announcement, September 30th, Frazier sold all 8,000 shares, generating trading profits of $54,616.
15. Hamrick, a former registered representative, is Frazier's brother-in-law. By no later than September 3, 2003, Frazier began discussing Howell with Hamrick. Hamrick was aware that the information Frazier provided was information he had obtained by virtue of his employment with Anadarko. Although Hamrick had never before invested in Howell, he began to accumulate its stock as it became evident that Anadarko would acquire Howell. Hamrick purchased 700 shares on September 24th and another 400 shares on September 25th. On September 26th, Frazier told Hamrick that Anadarko would likely acquire Howell, and Hamrick purchased another 900 shares. Hamrick, like Frazier, liquidated his entire holdings in Howell on the day its acquisition was announced. Hamrick's trading profit from the sale of these 2000 shares of Howell was $13,839.
16. The Commission repeats and incorporates paragraphs 1 through 15 of this Complaint by reference, as if set forth verbatim.
17. The Defendants, Gregory D. Frazier and Stephen A. Hamrick, directly or indirectly, in connection with the purchase and sale of securities, by use of the means and instrumentalities of interstate commerce and by use of the mails have: (a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material facts and 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; and (c) engaged in acts, practices and courses of business which operate as a fraud and deceit upon purchasers, prospective purchasers and other persons.
18. As a part of and in furtherance of the scheme, Defendant Frazier directly and indirectly, breached a fiduciary duty to Anadarko and its shareholders by trading in Howell securities on the basis of material, non-public information improperly obtained as corporate insider of Anadarko.
19. As a part of and in furtherance of the scheme, Defendant Frazier, directly and indirectly, breached his fiduciary duty to Anadarko and its shareholders by disclosing material, non-public information to Hamrick under circumstances in which it was reasonably foreseeable that Hamrick would use the information to trade in Howell securities. Frazier made this disclosure for his own benefit and for the benefit of his brother-in-law. Hamrick knew or should have known that information concerning Anadarko's acquisition of Howell was delivered to him in breach of Frazier's duty of trust and confidence owed to Anadarko. Hamrick inherited Frazier's duty not to trade in Howell securities on the basis of the material, nonpublic information.
20. By reason of the foregoing, the Defendants have violated, and unless enjoined, will continue to violate 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].
THEREFORE, the Commission respectfully requests that the Court empanel a jury to resolve the factual allegations alleged in the Commission's Complaint and upon the jury's verdict finding that each of the Defendants Gregory D. Frazier and Stephen A. Hamrick 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] thereunder, enter orders that:
Permanently enjoin each of the Defendants Frazier and Hamrick from violating 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;
Order the Defendants Frazier and Hamrick to pay to the registry of this Court disgorgement of ill-gotten gains plus prejudgment interest;
Order Defendants Frazier and Hamrick to pay civil penalties of up to three times the profit realized as a result of the unlawful purchase, sale or communication regarding the Howell securities pursuant to Section 21A of the Exchange Act [15 U.S.C. § 78u-1];
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; and
Order such other relief as the Court may deem appropriate.
JEFFREY B. NORRIS
Washington D.C. Bar No. 424258
U.S. Securities and Exchange Commission
Burnett Plaza, Suite 1900
801 Cherry Street, Unit #18
Fort Worth, TX 76102-6882
(817) 978-4927 (fax)
DATED: April 8, 2003
SPENCER C. BARASCH
Washington, D.C. Bar No. 388886
Texas Bar No. 16255300
Nebraska Bar No. 19010
Fort Worth District Office
801 Cherry Street, Suite 1900
Fort Worth, Texas 76102
(817) 978-2700 (facsimile)
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