UNITED STATES DISTRICT COURT
SECURITIES AND EXCHANGE COMMISSION,
GUILLERMO GARCIA SIMON, V. ARANA SIMON,
Civil Action No.
Plaintiff Securities and Exchange Commission (the "Commission") alleges:
1. This is an insider trading case involving highly profitable purchases of call options of FleetBoston Financial Corp. ("FleetBoston") made late in the afternoon on the business day before it was announced on October 27, 2003, that Bank of America Corp. ("Bank of America") agreed to acquire FleetBoston through a merger at a substantial premium.
2. The Defendants Guillermo Garcia Simon and V. Arana Simon and A. Garcia Simon ("Defendants") effected their purchases through an account maintained by Prudential Securities Inc. ("Prudential") in the name of "G. Garcia Simon and V. Arana and A. Garcia Simon Joint Tenants". Guillermo Garcia Simon is a former FleetBoston employee, and he shares the account with his wife and brother. For the year prior to these purchases, the Defendants had made no options purchases through this account. On October 24, 2003, while in possession of material, nonpublic information concerning the impending announcement of the merger, Defendants purchased a total of 1,100 FleetBoston November 35 call options. Each of these options give Defendants the right to purchase 100 shares of FleetBoston stock (for a total of 110,000 shares) at a price of $35 per share. At price of $0.10 per share, these options cost Defendants a total of $11,000. Defendants' purchases represented approximately 53 percent of the total trading volume in this series of call options that day.
3. On October 27, 1998, the day of the announcement, the price of FleetBoston options rose 48 times to $4.80 as of 1 p.m., and the price of FleetBoston common stock sharply increased by $7.86 per share, to $39.66 as of 1 p.m., or 24% higher than the $31.80 closing price the previous business day. Thus, the value of the Defendants' call options increased by approximately $517,000 in less than one trading day, and the value of the underlying stock increased by $864,600. As a result, Defendants have made substantial windfall profits by their illegal trading.
4. This Court has jurisdiction over this action pursuant to Sections 21(e), 21A and 27 of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. §§ 78u(e), 78u-1 and 78aa]
5. Defendants, directly or indirectly, have made use of the means or instrumentalities of interstate commerce, or of the mails, or the facilities of a national securities exchange in connection with the transactions, acts, practices and courses of business alleged herein.
6. Defendants will, unless restrained and enjoined, continue to engage in the acts, practices and courses of business alleged herein, or in transactions, acts, practices and courses of business of similar purport and object.
7. The Defendants G. Garcia Simon and V. Arana and A. Garcia Simon ("Defendants") effected their purchases through an account maintained in the name of "G. Garcia Simon and V. Arana and A. Garcia Simon Joint Tenants". On October 24, 2003, the Defendants effected, or caused to be effected, purchases of FleetBoston call options through an account maintained by Prudential Securities, Inc.
8. FleetBoston is a Delaware corporation headquartered in Boston, Massachusetts. FleetBoston's common stock is registered pursuant to Section 12(b) of the Exchange Act and trades on the New York Stock Exchange. Options in FleetBoston stock trade on the American Stock Exchange.
9. Bank of America is a Delaware corporation headquartered in Charlotte, North Carolina. Its common stock is registered pursuant to Section 12(b) of the Exchange Act and trades on the New York Stock Exchange.
10. Paragraphs 1 through 9 are realleged and incorporated herein by reference.
11. Prior to the start of trading on the New York and American stock exchanges on October 27, 2003, FleetBoston and Bank of America jointly announced that they had signed an agreement pursuant to which Bank of America would acquire FleetBoston by means of a merger.
12. On October 24, 2003, the business day before the acquisition was announced, FleetBoston's common stock closed at a price of $31.80. The merger was announced before the markets opened on Monday, October 27, 2003. On October 27, 2003, the price of FleetBoston common stock surged to a price of $39.66 by 1 p.m., representing a 24% increase over the closing price the previous business day.
13. On October 24, 2003, the Defendants purchased a total of 1,100 November 30 call options. Each option gave the Defendants the right to buy 100 shares of FleetBoston common stock at $35.00 per share (or total of 110,000 shares), expiring in late November 2003. These options cost the Defendants $0.10 per share for a total of $11,000. Defendants purchases represented approximately 53 percent of the total trading volume in this series of call options that day.
14. At the time each of the Defendants purchased, or caused to be purchased, the call options described above, they were in possession of material, nonpublic information about the impending announcement of FleetBoston's merger with Bank of America. Each of the Defendants knew, had reason to know, or recklessly disregarded the fact (1) that their trading was in breach of fiduciary or similar duties of trust and confidence they owed to the shareholders of FleetBoston or to the source from which they received material nonpublic information or (2) that material nonpublic information about the merger had been communicated to them in breach of fiduciary or similar duties of trust and confidence.
15. By reason of the foregoing, defendant(s), directly and indirectly, violated 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], and are likely to commit such violations in the future unless enjoined from doing so.
WHEREFORE, Plaintiff Commission respectfully requests that this Court enter a judgment:
(i) permanently enjoining each of the Defendants from violating 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];
(ii) ordering each of the Defendants to disgorge all profits realized from the unlawful trading alleged herein, with prejudgment interest;
(iii) ordering each of the Defendants to pay civil penalties under Section 21A of the Exchange Act [15 U.S.C. § 78u-1]; and
(iv) granting such other relief as this Court may deem just and appropriate.
The SEC requests a jury trial on its claim.
JUAN MARCEL MARCELINO
Luke T. Cadigan,
Senior Trial Counsel (BBO# 561117)
Celia D. Moore
Dep. Asst. District Adminsitrator (BBO#542136)
Senior Counsel (BBO# 546645)
Senior Counsel (BBO# 567598)
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
73 Tremont Street, 6th Floor
Boston, Massachusetts 02108
Tel. No. (617) 424-5900, ext. 203 (Cadigan)
Fax No. (617) 424-5940
Dated: October 28, 2003
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