Kenneth L. Miller (KM-5614)
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission alleges:
1. This case arises from highly lucrative insider trading in the common stock of Nalco Chemical Company by a United States registered broker-dealer, Multinvestments, Inc., and its then Chairman, Hugo Salvador Villa Manzo ("Villa").
2. Villa directed Multinvestments, Inc. to buy through its proprietary account over $2,000,000 of Nalco common stock shortly before the June 28, 1999, public announcement that Nalco would be acquired by a French company, Suez Lyonnaise des Eaux, S.A., via a tender offer that would commence within five business days for all outstanding Nalco common stock at a substantial premium. Villa obtained material nonpublic information concerning the Nalco acquisition from Jose Luis Ballesteros Franco, then a director of Nalco. Villa's and Multinvestments, Inc.'s fraudulent conduct resulted in illegal profits of over $550,000.
3. The SEC seeks, with respect to both defendants, injunctions against future violations, full disgorgement of the defendants' illegal profits together with prejudgment interest, and civil monetary penalties pursuant to Sections 21(d)(1), 21(e) and 21A of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u(d)(1), (e) and 78u-1].
JURISDICTION AND VENUE
4. This Court has jurisdiction pursuant to Sections 21(d)(1), 21(e), 21A and 27 of the Exchange Act [15 U.S.C. §§ 78u(d)(1) and (e), 78u-1 and 78aa]. Defendants directly or indirectly used the means or instrumentalities of interstate commerce or the mails, or the facilities of a national securities exchange, in connection with their illegal conduct.
5. Venue is proper because Nalco's common stock was, at all relevant times, listed on the New York Stock Exchange.
6. Defendant Hugo Salvador Villa Manzo, age 61, is a Mexican national residing in Mexico. At all relevant times, he was the Chairman and part-owner of MultiValores Grupo Financiero, S.A. de C.V., a Mexican company that owns Multinvestments, Inc., a United States broker-dealer. At all relevant times, he was also the Chairman of Multinvestments, Inc.
7. Multinvestments, Inc., located in San Antonio, Texas, is registered as a broker-dealer with the Commission and is a member of the National Association of Securities Dealers, Inc. It is wholly-owned by Multivalores Casa de Bolsa, S.A. de C.V. which in turn is wholly-owned by MultiValores Grupo Financiero, S.A. de C.V., a corporation publicly traded in Mexico.
OTHER RELEVANT ENTITIES
8. Nalco Chemical Company is a Delaware corporation headquartered in Naperville, Illinois. Nalco manufactures and sells chemicals used in water treatment, pollution control, electric generation and other industrial processes. Nalco's common stock was, at all relevant times, registered pursuant to Section 12(b) of the Exchange Act and listed on the New York Stock Exchange.
9. Suez Lyonnaise des Eaux, SA is a French company headquartered in Paris, France. Suez is involved in construction, water distribution, waste management, communications, energy distribution and real estate investment. Its stock trades on the Paris Bourse.
10. H20 Acquisition Co. is a Delaware corporation that is a wholly-owned subsidiary of Suez. Suez used H2O as its corporate vehicle to acquire Nalco.
11. Plaintiff SEC repeats and realleges Paragraphs 1 through 10 above.
Nalco's Policies Concerning Insider Trading
12. At all relevant times, Nalco's policies prohibited its directors from using any material nonpublic information concerning Nalco to buy or sell Nalco stock. Nalco also prohibited its directors from passing on such information to others. In particular, Nalco told its directors (i) not to trade Nalco stock without first informing Nalco's Corporate Secretary, (ii) not to trade while in possession of material undisclosed information regarding Nalco, and (iii) not to trade during any particular period for which Nalco recommended suspension of trading. Nalco also told its directors not to own Nalco stock in street name, i.e., in the name of a broker or nominee.
13. Jose Luis Ballesteros was aware of these Nalco policies. As early as January 12, 1995, Nalco sent Jose Luis Ballesteros a letter transmitting a memorandum on insider trading and compliance with SEC rules. Again on December 5, 1996, Nalco sent Jose Luis Ballesteros an updated copy of Nalco's policy statement on insider trading tailored specifically for Nalco directors. Furthermore, Nalco cautioned its directors against insider trading at certain Nalco board meetings.
Suez Proposes to Acquire Nalco And
14. On April 13, 1999, Suez and Nalco entered into a confidentiality agreement in order to discuss a possible business combination between the two companies. The discussions began on April 21, when senior representatives of Suez and Nalco met in Chicago.
15. On April 27, Suez sent Nalco a letter advising it of Suez's interest in acquiring Nalco in a cash transaction. The next day, Jose Luis Ballesteros attended a regularly scheduled Nalco board meeting. At the meeting, Nalco informed Jose Luis Ballesteros and its other board members of Suez's interest in acquiring Nalco.
16. On May 2, Nalco's financial advisor sent Suez a letter requesting that Suez provide an approximate purchase price to acquire Nalco. Suez replied on May 10 with a preliminary non-binding proposal reiterating its interest in acquiring Nalco and providing a potential purchase price in the range of $43 to $49 per share of common stock. Suez indicated that this preliminary proposal was subject to due diligence review.
17. On May 12, Suez and Nalco representatives agreed in a telephone conversation to meet to discuss a possible transaction between the parties. On May 17 and 18, senior representatives of Suez and Nalco met in Paris and discussed various issues relating to a possible transaction between the parties, including potential synergies between the companies.
18. On May 25, Suez sent a further non-binding proposal to Nalco for a potential cash acquisition of Nalco at a purchase price of $52 per share of common stock. This offer represented a premium of 53% over Nalco's then-current market price, and a premium of 66% over Nalco's three-month weighted average market price. Nalco advised Suez that Nalco's board would meet on June 5 to consider Suez's proposal.
Jose Luis Ballesteros Receives Additional Inside Information
19. Jose Luis Ballesteros attended the June 5 Nalco board meeting. At this meeting, the board decided that Suez's most recent offer of $52 per share represented a serious proposal, but that Nalco should seek a higher purchase price. Also at this meeting, Nalco explicitly reminded Jose Luis Ballesteros and its other directors that the information relating to the possible transaction between Nalco and Suez was confidential and should not be disclosed to anyone. Nalco also told the directors that there was a blackout period then in effect during which they were not to buy or sell Nalco stock.
20. Four days later, in a June 9 telephone conversation, Suez and Nalco agreed, subject to negotiation of a definitive merger agreement, that Suez would acquire Nalco for a purchase price of $54 per share of common stock.
21. On June 11, legal, financial and accounting representatives of Suez continued the due diligence review of Nalco. From June 16 through June 18, Suez and Nalco representatives met in New York City to discuss the proposed acquisition.
22. On June 17, Jose Luis Ballesteros attended a regularly scheduled Nalco board meeting, in Naperville, Illinois. At the meeting, Nalco told Jose Luis Ballesteros and its other board members that (i) Suez had substantially completed its due diligence review without any surprises, (ii) Suez had conditionally offered to pay a price of $54 per share, and (iii) the transaction would likely be finalized sometime between June 20 and 27, at which point the Nalco board would meet to vote on the transaction.
Jose Luis Ballesteros Tips Villa
23. Prior to 1999, Jose Luis Ballesteros and Villa had a business relationship. Among other things, from 1995 through 1997, Jose Luis Ballesteros was a director of MultiValores Grupo Financiero, S.A. de C.V., a corporation publicly traded in Mexico, whose chairman is Villa.
24. Before June 24, 1999, Jose Luis Ballesteros had, directly or indirectly, provided Villa with confidential information regarding Suez's offer to acquire Nalco.
25. After receiving Ballesteros' tip, Villa then directly or indirectly instructed one of his senior colleagues at Multinvestments, Inc. (the "Senior Colleague") to buy Nalco stock for its proprietary account. Pursuant to Villa's instructions, on the morning of June 24, 1999, the Senior Colleague, who was located in Mexico, telephoned the CEO of Multinvestments, Inc., in San Antonio, Texas and told the CEO to buy 50,000 Nalco shares that day through the firm's proprietary account.
26. On the morning of June 24, 1999, Multinvestments, Inc., through its proprietary account, purchased 25,000 Nalco shares at $40 1/8 and 25,000 Nalco shares at $40 ½ for $2,015,625 using margin privileges. This transaction used the maximum amount available in Multinvestments, Inc.'s proprietary account without violating the firm's net capital requirements.
The Suez-Nalco Takeover Discussions Become Public
27. On the afternoon of June 24, 1999, Nalco publicly announced that it was in merger negotiations with an unnamed suitor.
28. On June 27, Nalco's board approved Suez's offer to acquire Nalco for $53.00 per share. Jose Luis Ballesteros attended the June 27 board meeting. At the meeting, Nalco told Jose Luis Ballesteros and its other directors that they could not buy or sell Nalco stock during the tender period.
29. On Monday, June 28, Suez and Nalco jointly announced that they had signed a definitive merger agreement for Suez to acquire all outstanding shares of Nalco. Suez agreed to pay $53.00 per share for each Nalco common share, a premium of approximately $10.50 over the June 25, closing price of $42.50 per share. The transaction was structured to occur through a cash tender offer, which began on July 1, 1999.
Multinvestments, Inc. and Villa
30. On June 28, 1999, the Senior Colleague directed that the Nalco shares be sold. On that day, Multinvestments Inc. sold 40,000 Nalco shares at $51 ½ and, on the following day, the remaining 10,000 Nalco shares at $51 ¾.
31. As a result of these transactions, unlawful profits totaling $558,750 were realized.
Jose Luis Ballesteros's Violation Of His Fiduciary Duties
32. As a Nalco director, Jose Luis Ballesteros owed a fiduciary duty to Nalco and its shareholders. As a result, Jose Luis Ballesteros had a duty not to trade while in possession of the material nonpublic information he obtained concerning the Suez acquisition and to safeguard the confidentiality of that information and not misuse it.
33. In breach of these duties, and for his personal benefit, Jose Luis Ballesteros communicated material nonpublic information concerning the proposed acquisition to Villa. Jose Luis Ballesteros knew or was reckless in not knowing the information he disclosed was nonpublic and that his disclosure of the information was improper and in breach of duties he owed. Jose Luis Ballesteros' disclosure of this information was made under circumstances in which he knew, or should have known, or acted with reckless disregard of the fact that Villa was likely to effect transactions in Nalco stock or to disclose the information to others who were likely to effect such transactions.
Defendants' Violation Of Their Fiduciary Duties
34. Villa knew, should have known, or acted in reckless disregard of the fact that the information he received, directly or indirectly, from Jose Luis Ballesteros was nonpublic, and that the information was disclosed to him in violation of a fiduciary or other duty of trust and confidence. Accordingly, Villa inherited Jose Luis Ballesteros' duty not to trade on that information and not to communicate it improperly to others. Villa knowingly or recklessly breached these duties and, through his position as Chairman of Multinvestments, Inc., and his actions, led Multinvestments, Inc. to also violate such duties.
35. By reason of the foregoing, defendants, 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].
36. Plaintiff SEC repeats and realleges Paragraphs 1 through 35 above.
37. By June 16, 1999, Suez had taken a substantial step or steps to commence its tender offer for the outstanding shares of Nalco common stock.
38. By June 24, defendants had engaged directly or indirectly in fraudulent, deceptive or manipulative acts or practices in connection with a tender offer by Suez for the common stock of Nalco by (i) purchasing or causing to be purchased the securities of Nalco while in possession of material information relating to the tender offer, which information they knew or had reason to know was nonpublic and which information they knew or had reason to know was obtained directly or indirectly from Suez or Nalco or a person acting on behalf of either Suez or Nalco; or (ii) communicating to others material nonpublic information relating to the Suez tender offer, under circumstances in which it was reasonably foreseeable that such communications were likely to result in the purchase or sale of the securities of Nalco.
39. By reason of the foregoing, defendants directly or indirectly violated Section 14(e) of the Exchange Act [15 U.S.C. § 78n(e)] and Rule 14e-3 [17 C.F.R. § 240.14e-3] thereunder.
PRAYER FOR RELIEF
Plaintiff Securities and Exchange Commission requests judgment:
(i) permanently enjoining defendants Hugo Salvador Villa Manzo and Multinvestments, Inc. from violating Sections 10(b) and 14(e) of the Exchange Act [15 U.S.C. §§ 78j(b) and 78n(e)], and Rules 10b-5 and 14e-3 thereunder [17 C.F.R. §§ 240.10b-5 and 240.14e-3];
(ii) ordering defendants Hugo Salvador Villa Manzo and Multinvestments, Inc. to disgorge all profits realized from the unlawful trading described above, together with prejudgment interest;
(iii) ordering defendants Hugo Salvador Villa Manzo and Multinvestments, Inc. to pay civil monetary penalties under Section 21A of the Exchange Act [15 U.S.C. § 78u-1]; and
(iv) granting such other relief as the Court may deem just and appropriate.