UNITED STATES DISTRICT COURT
Securities and Exchange Commission,
FRANCES J. BURKITT and
C. A. No.
Plaintiff Securities and Exchange Commission ("Commission") alleges for its Complaint the following:
1. This matter involves unlawful insider trading in the common stock of RMH Teleservices, Inc.("RMHT") by defendant Frances J. Burkitt ("F. Burkitt"), who sold RMHT stock while in possession of material, nonpublic information concerning negative financial news to be announced by RMHT, which he had received from defendant Paul Burkitt ("P. Burkitt"), his son and an officer of RMHT.
2. On January 4, 2001, RMHT announced that it expected a loss for its first fiscal quarter ended December 31, 2000, and lowered revenue estimates for fiscal year 2001. Following the announcement, the price of RMHT stock declined sharply, closing at $3.50 per share, down 50 percent from the previous day's close of $7 per share.
3. In a telephone conversation on the evening of January 2, 2001, P. Burkitt tipped his father about RMHT's upcoming negative announcement. On January 3, 2001, prior to RMHT's announcement, F. Burkitt sold 10,000 shares, his entire holdings of RMHT stock. As a result of his illegal trading, F. Burkitt avoided losses of $33,987.
4. As a result of the conduct alleged in this Complaint, defendants Frances J. Burkitt and Paul Burkitt have violated and, unless restrained and enjoined, will continue to violate 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 thereunder, 17 C.F.R. § 240.10b-5.
5. The Commission brings this action pursuant to the authority conferred upon it by Section 20(b) of the Securities Act, 15 U.S.C. § 77t(b), and Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d), to enjoin such acts, transactions, practices and courses of business, obtain disgorgement and prejudgment interest thereon, civil penalties, and for other appropriate relief.
6. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.
7. Certain of the acts, transactions, practices and courses of business constituting the violations alleged herein occurred within the District of Maryland and elsewhere, and were effected, directly or indirectly, by making use of the means or instruments of transportation or communication in interstate commerce, or the means or instrumentalities of interstate commerce, or the mails, or the facilities of a national securities exchange.
8. Paul Burkitt, age 41, is a resident of Wayne, Pennsylvania. During all times relevant to the conduct alleged herein, he was the Executive Vice President of Sales and Marketing for RMHT, reporting directly to the company's Chief Executive Officer.
9. Frances J. Burkitt, age 71, is a resident of Arnold, Maryland, and is Paul Burkitt's father. He is retired.
10. RMHT, headquartered in Newtown Square, Pennsylvania, provides customer relationship management services for corporations in the technology, telecommunications, financial services, insurance, and other industries. Its stock is traded on the NASDAQ National Market under the symbol "RMHT." For fiscal year 2001, RMHT reported revenue of $174 million and a net loss of $17.6 million. RMHT's fiscal year ends September 30th.
Paul Burkitt's Access to Material, Nonpublic Financial Information
11. As the Executive Vice President of Sales and Marketing for RMHT, P. Burkitt's primary responsibility was to attract significant new clients for the company. He also had marketing responsibilities.
12. As a member of senior management, P. Burkitt regularly received material nonpublic information about RMHT's financial condition. He periodically received financial data about the company, including monthly financial statements. He also had access to ongoing sales and revenue information through RMHT's internal network site. This information, produced by the accounting department, changed weekly and represented a rolling forecast of the company's financial status. P. Burkitt also chaired a business development committee that met each week to discuss sales prospects.
13. Each month, P. Burkitt also received an unaudited consolidated statement of earnings ("Statement of Earnings") prepared by RMHT's Chief Financial Officer and Chief Accounting Officer. The Statement of Earnings, reflecting information provided by various company divisions, was used to establish revenue estimates or forecasts. It provided, among other things, a comparison of actual and budgeted profit and loss figures, and earnings per share ("EPS"), by month and year-to-date.
14. On November 16, 2000, RMHT announced during an analysts' conference call, made available to the public by telephone and the Internet, that it was lowering its previously announced revenue estimates for fiscal year 2001 based, in part, on the decrease in business from a major customer.
15. On December 7, 2000, the Statement of Earnings for October 2000, the first month of the first quarter of fiscal year 2001, was distributed to senior management, including P. Burkitt, and reflected a loss for October of $82,500. The October Statement of Earnings showed management that RMHT had failed to meet its budgeted EPS of $0.065 for October, and had actually lost $0.009 per share for the month.
16. On December 21, 2000, the November Statement of Earnings (the second month of the quarter) was provided to senior management, including defendant P. Burkitt, and reflected an even greater loss of $509,000 for that month. The data showed that, by the end of November, RMHT had incurred a year-to-date loss for the quarter of approximately $592,000 and was already $0.152 below the projected year-to-date EPS figure..
17. Based on the November Statement of Earnings, the Chief Financial Officer prepared an earnings forecast for the first quarter of 2001 from which he concluded that RMHT could not meet the estimates previously announced in mid-November. In particular, he concluded that the losses for the first two months of the quarter were too great to overcome in the final month, and that RMHT would therefore incur a loss for the entire first quarter.
18. P. Burkitt was aware of RMHT's deteriorating financial condition. As an officer of RMHT, P. Burkitt also knew that the earnings information provided to him was confidential and had not been disclosed to the public.
19. In late December 2000, RMHT's CEO decided that the company would publicly announce the revised revenue and earnings estimates, and the company contacted its outside investor relations firm to prepare and disseminate the press release. P. Burkitt had knowledge of the contents of the press release and read it before it became public.
20. On January 4, 2001, RMHT publicly announced that it expected to post a first-quarter loss for fiscal year 2001 and lowered first-quarter 2001 revenue estimates by $3 million, from $35 million to $32 million. The company further announced that it would close several facilities, cut other infrastructure costs, and take a first quarter charge of $2.6 million. In response to the announcement, RMHT's stock price dropped to $3.50 per share, down 50 percent from the previous day's close of $7 per share.
Frances Burkitt's Unlawful Trading
21. P. Burkitt knew that his father owned RMHT stock. On January 2, 2001, during a telephone conversation at approximately 6:00 p.m., P. Burkitt, in breach of his fiduciary duties to RMHT and its shareholders, and for his direct or indirect personal benefit, conveyed material, nonpublic information concerning RMHT's upcoming announcement of the negative earnings results to F. Burkitt.
22. The following day, January 3, 2001, F. Burkitt sold his entire holdings of RMHT common stock, 10,000 shares, placing the first of three sell orders at 5:55 a.m. F. Burkitt sold his RMHT stock while he knew or was reckless in not knowing that the information he had received from P. Burkitt was nonpublic and was disclosed to him in breach of P. Burkitt's fiduciary duties.
23. As a result of the timing of his trading, F. Burkitt avoided losses of $33,987. He received gross proceeds of approximately $69,000. Beginning less than two weeks after he sold all of his RMHT stock, and continuing until January 25, 2001, F. Burkitt proceeded to reinvest the entire proceeds from his January 3, 2001 sales in RMHT stock, buying 14,000 shares.
24. Paragraphs 1 through 23 are realleged and incorporated herein by reference.
25. As a result of the conduct alleged herein, defendants Frances J. Burkitt and Paul Burkitt, in connection with the offer, purchase or sale of securities, directly or indirectly, by use of the means and instruments of transportation and communication in interstate commerce, or the means and instrumentalities of interstate commerce, or the mails, or the facilities of a national securities exchange: (i) employed devices, schemes, or artifices to defraud; (ii) obtained money or property by means of, and made, untrue statements of material facts, 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 (iii) engaged in acts, transactions, practices and courses of business which operated as a fraud and deceit upon other persons.
26. By reason of the foregoing, defendants Frances J. Burkitt and Paul Burkitt violated Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), 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.
WHEREFORE, the Commission respectfully requests that this Court:
Issue an injunction permanently restraining and enjoining defendants Frances J. Burkitt and Paul Burkitt from violating Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), 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 defendants Frances J. Burkitt and Paul Burkitt to disgorge the unlawful losses avoided in connection with their actions, as described in this Complaint, together with prejudgment interest thereon.
Order defendants Frances J. Burkitt and Paul Burkitt to pay civil penalties pursuant to Section 21A of the Exchange Act, 15 U.S.C. § 78u-1, of up to three times the amount disgorged..IV.
Order such other and further relief as the Court may deem just and appropriate.
/ s /
Merri Jo Gillette, PA Bar No. 37075
David S. Horowitz, PA Bar No. 19781
Kingdon Kase, PA Bar No. 37952
Deborah E. Siegel, D.C. Bar No. 358846
Attorneys for Plaintiff:
SECURITIES AND EXCHANGE COMMISSION
Mellon Independence Center
701 Market Street, Suite 2000
Philadelphia, PA 19106
(215) 597-2740 (Fax)
Thomas M. DiBiagio
United States Attorney
/ s /
Thomas F. Corcoran
Assistant United States Attorney
Federal Bar No. 24894
6625 United States Courthouse
101 West Lombard Street
Baltimore, Maryland 21201-2692
Dated: September 29, 2003
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