IN THE UNITED STATES DISTRICT COURT
Plaintiff, Securities and Exchange Commission ("Commission"), alleges as follows:
1. The Commission brings this action against Defendants George and Peter Matus for insider trading in "put" options of Carreker Corporation.
2. On or about May 4, 2001, George Matus, Carreker's Senior Vice President of Investor Relations, learned from company accountants that Carreker's quarterly earnings would fall well below analysts' consensus earnings estimate. On or about May 16th, after having participated in discussions regarding announcing the earnings shortfall and participating in the drafting of the press releases, George Matus learned that the announcement of the negative news would occur on May 22nd after the close of trading. Shortly thereafter, George Matus made two separate attempts to transfer funds to Peter Matus, his brother and a licensed stock broker, so that Peter Matus could trade in Carreker securities on the basis of George Matus' confidential insider information. Although his first attempt was stymied, on the second attempt, George Matus was able to transfer $50,000 to his brother's brokerage account to facilitate Peter Matus' purchase of the put options for Carreker stock. Starting approximately four hours before the announcement of Carreker's negative news, Peter Matus used the funds transferred from his brother to purchase, in twelve separate transactions, 750 July put options, positioning the Matus brothers to profit when the stock price declined. Ultimately, the negative news was released, and predictably Carreker's share price declined sharply. Just days after purchasing the puts, Peter Matus sold them for a trading profit of $209,940. When asked to formally testify regarding the put option trades, both George and Peter Matus invoked the Fifth Amendment and refused to testify.
3. By virtue of the conduct described in this Complaint, the George and Peter Matus 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, as further defined by Rules 10b5-1 and 10b5-2, thereunder [17 C.F.R. §§240.10b-5, 10b5-1, 10b5-2].
4. The Commission brings this action, pursuant to Sections 21(d) and (e) and 21A of the Exchange Act [15 U.S.C. §§ 78u(d) and (e) and 78u-1(a)] for an order permanently restraining and enjoining the Defendants, ordering disgorgement of unlawful profits, imposing civil penalties, and imposing an officer-and-director bar against Defendant George Matus.
JURISDICTION AND VENUE
5. This Court has jurisdiction pursuant to Sections 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 many of the transactions, acts, practices and courses of business described below occurred within the jurisdiction of the Eastern District of Texas.
6. The Defendants, directly and indirectly, 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 in this Complaint.
7. Carreker Corporation is a Texas corporation located in Dallas, Texas, whose common stock trades on the Nasdaq Stock Market and whose options trade on the American, Pacific, and Chicago options exchanges. Carreker sells e-commerce consulting services and software for banks. During all relevant times, Carreker had a policy prohibiting trading by its employees based on material, non-public information.
8. George Matus, age 32, is a resident of Allen, Texas, and the Senior Vice President of Investor Relations at Carreker.
9. Peter Matus, age 27, is the brother of George Matus and a resident of Holladay, Utah. Peter Matus was a part-time registered representative for the Salt Lake City office of Terra Nova Trading, LLC at the time of the unlawful conduct alleged herein.
George Matus Learns of Material, Non-public Information.
10. On or about May 4, 2001, senior officers of Carreker, including George Matus, learned that the company would miss its prior first-quarter earnings estimates. Over the next twelve days, various senior officers discussed and circulated draft announcements of the negative news. George Matus was intricately involved in all aspects of the negative news release, including drafting the actual text for the press release and discussing with other senior managers the timing for dissemination of the negative news.
11. On or about May 16th, George Matus learned that Carreker would announce the earnings shortfall to the public on May 22nd, after the close of trading.
12. Shortly after the close of trading on May 22nd, Carreker issued the press release announcing lowered earnings estimates for the first quarter of 2001 from the analyst consensus of $.13 per share to $.06 per share. As a result of the negative announcement, on May 23rd, the price of Carreker's shares fell sharply from the previous day's close of $18.67 to a close of $13.55, an approximately 28% decrease. And over the next four days, the share price of Carreker continued to fall, sinking to $10.62 per share on May 30th, approximately 43% below the pre-announcement levels.
George Matus Tips Peter Matus and Transfers Funds for Put Option Purchases.
13. George Matus, as a corporate officer and employee of Carreker, owed a fiduciary duty of loyalty and trust to Carreker and its shareholders. Despite this duty and despite Carreker's prohibition against insider trading, of which George Matus was aware, George Matus, disclosed material, non-public information about Carreker to Peter Matus, his brother. On the basis of this material, non-public information about Carreker, Peter Matus then purchased and sold Carreker securities for the benefit of both brothers.
14. Between May 16th (the approximate date George Matus learned that Carreker would announce the negative earnings news on May 22nd) and May 21st (the day before the actual release) George Matus and Peter Matus exchanged telephone calls at least forty times. On May 21st, George Matus made two requests to transfer funds to his brother. First, George Matus directed his broker to transfer $40,000 to a personal account of Peter Matus at Terra Nova. In this first request, George Matus provided handwritten instructions to his broker requesting that the money be transferred "as soon as possible (by latest, morning of 5/22/01)."
15. On May 21st, in preparing to implement the scheme with his brother, Peter Matus called a Terra Nova employee to discuss the funds transfer and his intention to trade in Carreker put options. In addition, and also on May 21st, George Matus called a Terra Nova employee to discuss the funds transfer to his brother's account and the availability of the funds for options trading purposes. Ultimately, Terra Nova could not allow Peter Matus access to any of the funds George Matus intended to transfer in time to allow him to make any trades in the Carreker options on May 22. In light of this impediment, the Matus brothers sought an alternative arrangement.
16. Shortly following the failed Terra Nova transfer, George Matus made an inter-office transfer of $50,000 from his Charles Schwab brokerage account to Peter Matus' Charles Schwab brokerage account. In a handwritten note dated May 21st at 3:33 p.m., George Matus instructed his broker to transfer the funds to Peter Matus' account "as early as possible Tuesday morning 5/22/01 pref. before market open."
Peter Matus Purchases Put Options With Knowledge
17. With new funds in his Schwab account-and just four hours before the planned announcement of negative news-Peter Matus began purchasing Carreker put options. A put option obligates a particular buyer to purchase shares at a set price on a date certain. As the value of a company's stock declines, the value of the put option normally increases. By purchasing put options, the Matus brothers positioned themselves to benefit when Carreker's share price declined. On May 22nd, from noon until approximately 4:00 p.m., Peter Matus placed twelve trades purchasing 750 July put options. Of the $50,000 sent by his brother, Peter Matus spent a total of $46,994 (including commissions) on the Carreker puts.
18. After the announcement of the negative news, Carreker's share price declined sharply. At the close of trading on the first day after the release, and as expected by the Matus brothers, Carreker's shares fell approximately 28%. By the time Peter Matus sold the options, on May 29th and May 30th, the share price in Carreker stock had declined nearly 43%. Peter Matus sold the 750 options and realized a net profit of $209,940.
19. When questioned informally about their suspicious trading activity, both George and Peter Matus gave the Commission conflicting explanations about their conduct. George Matus initially denied having any advance knowledge of Carreker's negative news. He then denied knowing that the negative news would be released on May 22. E-mails obtained from Carreker showed, however, that George Matus was significantly involved in the drafting of Carreker's press release and knew of the timing of the release. With respect to the transfer of the funds, George Matus initially told the Commission that he transferred the money to his brother so Peter Matus could place trades on his behalf. He subsequently abandoned this position and told the Commission that he made a "gift" of the money to his brother. In light of these inherently contradictory statements, the Commission asked both George and Peter Matus to answer questions under oath. Each refused to testify and invoked his right Fifth Amendment right against self-incrimination.
CLAIM FOR RELIEF
Violations of Section 10(b) of the Exchange Act and Rule 10b-5.
20. The Commission repeats and incorporates paragraphs 1 through 19 of this Complaint by reference, as if set forth verbatim.
21. The Defendants, George Matus and Peter Matus, 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.
22. As a part of and in furtherance of the scheme, Defendant George Matus, directly and indirectly, breached his fiduciary duty to Carreker and its shareholders by disclosing material, non-public information to Peter Matus under circumstances in which it was reasonably foreseeable that Peter Matus would use the information to trade in Carreker securities. George Matus made this disclosure for his own benefit and for the benefit of his brother.
23. As a part of and in furtherance of the scheme, Defendant Peter Matus directly and indirectly, breached a fiduciary duty to Carreker and its shareholders by trading in Carreker securities on the basis of material, non-public information improperly obtained from a corporate insider of Carreker. Peter Matus knew or should have known that the negative news about Carreker's earnings was delivered to him in breach of George Matus' duty of trust and confidence owed to Carreker. Peter Matus inherited George Matus' duty not to trade in Carreker securities on the basis of the material, nonpublic information.
24. 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, as further defined by Rules 10b5-1 and 10b5-2, thereunder [17 C.F.R. §§240.10b-5, 10b5-1, 10b5-2].
PRAYER FOR RELIEF
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 George Matus and Peter Matus 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:
25. permanently enjoin each of the Defendants George Matus and Peter Matus 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;
26. order the Defendants George Matus and Peter Matus, on a joint-and-several basis, to pay to the registry of this Court disgorgement of ill-gotten gains plus prejudgment interest;
27. order each of the Defendants George Matus and Peter Matus to pay civil penalties of up to three times the profit realized as a result of the unlawful purchase, sale or communication regarding the Carreker securities pursuant to Section 21A of the Exchange Act [15 U.S.C. § 78u-1];
28. permanently enjoin and restrain George Matus from acting as a director or officer of any issuer having a class of securities registered with the Commission pursuant to Section 12 of the Exchange Act [15 U.S.C. § 78l] or required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)];
29. 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
30. order such other relief as the Court may deem appropriate.
TIMOTHY P. DAVIS