UNITED STATES DISTRICT COURT
SECURITIES AND EXCHANGE COMMISSION,
MARVIN W. GOLDSTEIN,
Plaintiff, United States Securities and Exchange Commission ("Commission"), alleges as follows:
1. During 1997 and 1998, Marvin W. Goldstein ("Goldstein"), purchased and sold securities of A.O. Smith Corporation ("A.O. Smith") and Tower Automotive, Inc. ("Tower"), both publicly traded companies, while in possession of material, nonpublic information he received from George E. Kline ("Kline"). Specifically, during the relevant time period, Kline received information about A.O. Smith and Tower from Robert Hibbs, who served as an officer of Tower. Kline obtained from Hibbs material, nonpublic information about an acquisition of a subsidiary of A.O. Smith and an upcoming announcement of favorable earnings by Tower. Kline then tipped Goldstein to this inside information. At the time he received the tips, and was thus privy to material nonpublic information, Goldstein knew that George Kline was passing him material, nonpublic information. While in possession of this information, Goldstein purchased shares in both A.O. Smith and Tower shortly before the relevant announcements. Goldstein then sold his shares shortly after the public announcements.
2. By engaging in these transactions while in possession of inside information obtained from Kline, Goldstein knowingly or recklessly engaged in insider trading violations that resulted in profits of approximately $33,000.
3. On July 3, 2001 the United States District Court for the District of Minnesota accepted George Kline's plea of guilty to multiple counts including one count of conspiracy to commit securities fraud and mail fraud, two counts of securities fraud, two counts of mail fraud, and one count of engaging in a prohibited short sale of securities in violation of 18 U.S.C. §371, 15 U.S.C. §§78j(b) and 78ff(a), 18 U.S.C. §1341 and 15 U.S.C. §§78p(c) and 78ff(a) as well as one count of engaging in a monetary transaction in property derived from specified unlawful activity in violation of 18 U.S.C. §1957.
4. On April 8, 2003 the United States District Court for the District of Minnesota accepted Goldstein's plea of guilty to two counts of securities fraud, 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 [17 C.F.R. §240.10b-5] promulgated thereunder.
5. In his plea agreement reached with the United States Attorney's Office for the District of Minnesota, Goldstein agreed to a monetary penalty totaling $1 million in fines and restitution.
6. In light of the monetary penalties required under the plea agreement, as described above, the Commission is not seeking disgorgement or a civil penalty in this action.
7. Goldstein, directly and indirectly, has engaged in and, unless enjoined, will continue to engage in acts, practices and courses of business which constitute and will constitute 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.
8. Plaintiff brings this action to enjoin such acts, practices and courses of business pursuant to Sections 21(d) and 21(e) and 21A of the Exchange Act [15 U.S.C. §§78u(d), 78u(e) and 78u-1].
9. The court has jurisdiction over this action pursuant to Sections 21 and 27 of the Exchange Act [15 U.S.C. §§78u and 78aa].
10. The acts, practices and courses of business constituting the violations herein occurred within the jurisdiction of the United States District Court of the District of Minnesota and elsewhere.
11. The 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.
12. The defendant, directly and indirectly, has made use of the mails and of the means and instrumentalities of interstate commerce in connection with the acts, practices and courses of business alleged herein in the District of Minnesota and elsewhere.
13. Marvin W. Goldstein, age 59, is a resident of Edina, Minnesota. Goldstein has served as both an officer and a director of various public companies.
14. At all times relevant herein, Marvin Goldstein lived in Edina, Minnesota and was serving as a director for a publicly traded company.
15. At all times relevant herein, Marvin Goldstein was an acquaintance of George Kline.
The A.O. Smith Trade
16. George Kline obtained material nonpublic information from Robert Hibbs, an officer of Tower, regarding Tower's upcoming acquisition of A.O. Smith or some portion of A.O. Smith.
17. Goldstein admitted in his criminal plea that in mid-January 1997, George Kline provided Goldstein with material, nonpublic information in the form of a recommendation to purchase A.O. Smith.
18. Kline knew or had reason to know that the information regarding the announcement was nonpublic and that it was improper to communicate it to Goldstein before the announcement.
19. Based on George Kline's tip to purchase shares of A.O. Smith, Goldstein purchased 2,500 shares of A.O. Smith for approximately $30.375 per share on January 14, 1997.
20. Goldstein admitted that at the time he executed the transaction, he knew that George Kline had provided him with material, nonpublic information.
21. On January 27, 1997, it was disclosed in a publicly released statement that A.O. Smith's subsidiary, Automotive Products Co. was going to be acquired by Tower. A.O. Smith closed at approximately $30.75 per share on January 24, 1997, the last trading day before the announcement and closed at approximately $33.62 per share on January 27, 1997, the day of the announcement, an increase of approximately 9%.
22. On February 5, 1997, Goldstein sold 2,500 shares of A.O. Smith at $33 3/4 per share, realizing approximately $8,024 in illegal profit based on George Kline's tip.
The Tower Trade
23. Goldstein admitted getting a tip from George Kline with the assistance of Kline's son, Erich Kline. Sometime in late September, 1998, George Kline provided Goldstein with material, nonpublic information regarding Tower Automotive, in the form of a recommendation to purchase Tower.
24. Goldstein admitted in his criminal plea that while in possession of material, nonpublic information from George Kline's tip, Goldstein purchased 10,000 shares of Tower. Goldstein purchased 600 shares at 17 3/8 and 4,400 shares at 17 1/2 on September 22, 1998. Goldstein then purchased another 5,000 shares on September 23, 1998 at $15 15/16 per share. In three transactions between September 22 and 23, 1998, Goldstein also purchased a total of 70 Tower stock options.
25. Kline knew or had reason to know that the information regarding the announcement was nonpublic and that it was improper to communicate it to Goldstein before the announcement.
26. Goldstein admitted that at the time he executed the transactions, he knew that George Kline had communicated material, nonpublic information regarding Tower to him.
27. On September 24, 1998, Tower publicly announced that it anticipated third quarter earnings to exceed expectations. Tower closed at approximately $16.38 per share on September 23, 1998, before the announcement and closed at approximately $17.62 per share on September 24, 1998, after the announcement. By the next day, September 25, 1998, the stock price had risen to $19 per share, an increase of 16%.
28. Following the public announcement, Goldstein sold all 10,000 shares of Tower and the options purchased prior to the announcements. Goldstein sold 5,000 shares on September 28, 1998 at $18 3/4 per share and 5,000 shares on September 30, 1998 at 19 5/8 per share. As a result of these transactions, Goldstein realized approximately $24,958 in illegal profits based on George Kline's tip.
29. Paragraphs 1 through 28 are hereby realleged and incorporated by reference herein.
30. For relevant time period, Defendant Goldstein, in connection with the purchase and sale of securities, by use of the means and instrumentalities of interstate commerce and 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 light of the circumstances under which they were made, not misleading; and engaged in acts, practices and courses of businesses which operated as a fraud and deceit upon purchasers and sellers of such securities. As part of his conduct, and as more fully set forth in paragraphs 1 through 28 above, Defendant Goldstein purchased and sold securities while in possession of material, non public information.
31. Defendant Goldstein knew or was reckless in not knowing the facts and circumstances described in paragraphs 29 and 30 above.
32. As a result of the activities described in paragraphs 29 through 31 above, Defendant Goldstein violated Section 10(b) of the Exchange Act [15 U.S.C. §78(b) and Rule 10b-5 [17 C.F.R. §240.10b-5] promulgated thereunder.
WHEREFORE, the Commission requests that the Court:
Find that the Defendant committed the violation alleged above.
Grant a Final Judgment and an order of permanent injunction ("Final Judgment"), in a form consistent with Rule 65(d) of the Federal Rules of Civil Procedure, enjoining Defendant Goldstein, his officers, agents, servants, employees, assigns, attorneys and those persons in active concert or participations 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 instrumentality of interstate commerce, engaging in the unlawful acts, practices and 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.
Grant an Order, pursuant to Section 21(d)(2) of the Exchange Act [15 U.S.C. §78u(d)(2)], barring Goldstein from acting as an officer or direct of any issuer required to file reports pursuant to Sections 12 or 15(d) of the Exchange Act [15 U.S.C. §§ 78l and 78o(d)].
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.
Grant an Order for such further relief as the Court may deem appropriate.
Rebecca R. Goldman
Illinois State Bar Number: 6277546
Tina K. Diamantopoulos
Illinois State Bar Number: 06224788
Attorneys for Plaintiff
Securities and Exchange Commission
175 West Jackson Boulevard
Chicago, IL 60604
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