Kenneth M. Gerland and Christopher M. Bernabei; Patrick I. Garvey; and Diane Karaoulis
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19649 / April 10, 2006
SEC v. Kenneth M. Gerland and Christopher M. Bernabei, Civil Action No. 06 CV 2767 (JGK) (SDNY Apr. 10, 2006)
SEC v. Patrick I. Garvey, Civil Action No. 06 CV 2766 (LAK) (SDNY Apr. 10, 2006)
SEC v. Diane Karaoulis, Civil Action No. 06 CV 2768 (RMB) (SDNY Apr. 10, 2006)
Commission Files Settled Insider Trading Charges Against Four Individuals for Tipping and Trading in SunSource, Inc. Stock
The Securities and Exchange Commission today filed three settled insider trading actions against three former employees of SunSource, Inc. and the nephew of one of those individuals. In complaints filed in the United States District Court for the Southern District of New York, the Commission alleged that Patrick I. Garvey, Diane Karaoulis, and Christopher M. Bernabei violated antifraud provisions of the federal securities laws by purchasing SunSource, Inc. stock in advance of the June 19, 2001, announcement of a merger agreement between SunSource and Allied Capital Corporation and that Kenneth Gerland violated these provisions by tipping Bernabei. Each of the defendants, without admitting or denying the Commission's allegations, has consented to the entry of a final judgment imposing injunctive and other relief.
In the action against Gerland and Bernabei, the Commission alleged that, in April 2001, Gerland, who was SunSource's Director of Taxes and Manager of Budgeting & Performance analysis, began working on due diligence relating to the potential merger of SunSource and Allied. As further alleged in the complaint, from April through June 18, 2001, Gerland knowingly or recklessly provided his nephew Bernabei with material, nonpublic information about SunSource in breach of the duty of trust and confidence that he owed SunSource and its shareholders. Starting on April 18, 2001, and continuing through June 18, 2001, Bernabei purchased a total of 4,450 shares of SunSource stock based on the information provided to him by Gerland. Following the announcement of the merger agreement, SunSource's stock price rose $4.54 per share over the prior day's closing price and closed at $9.50 per share on June 19, 2001. Bernabei sold most of his SunSource shares that day, realizing trading profits of $20,670. Bernabei has consented to the entry of a final judgment enjoining him from violating Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5, ordering him to disgorge $24,774.91 in trading profits plus pre-judgment interest, and ordering him to pay a civil penalty in the amount of $20,670. Gerland has consented to the entry of a final judgment enjoining him from violating Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5 and ordering him to pay a civil penalty in the amount of $20,670.
In the action against Garvey, the Commission alleged that he was a part-time consultant to SunSource who worked on due diligence for the proposed merger with Allied beginning in April 2001. Previously, senior management of SunSource had informed Garvey that he was precluded from trading in SunSource stock because of a potential transaction that was being considered. While working on the due diligence, Garvey purchased 400 shares of SunSource stock on June 1, 2001. According to the complaint, Garvey knew or was reckless in not knowing that the information that he had learned about SunSource's merger with Allied was material, nonpublic information and that trading in advance of the announcement of the merger agreement breached the duty that he owed to SunSource and its shareholders. By trading in advance of the announcement, Garvey had profits of $1,740. Garvey has consented to the entry of a final judgment enjoining him from violating Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, ordering him to disgorge $2,048 in trading profits plus pre-judgment interest, and ordering him to pay a civil penalty in the amount of $1,740.
In the action against Karaoulis, the Commission alleged that she was the secretary to SunSource's chief financial officer and that senior management informed Karaoulis that she was precluded from trading in SunSource stock, due to the potential transaction. As a result of her position, Karaoulis knew of the ongoing merger negotiations between SunSource and Allied. According to the complaint, Karaoulis's spouse bought 255 shares of SunSource stock on April 12, 2001, at her direction. The complaint alleges that Karaoulis knew or was reckless in not knowing the information that she had learned about SunSource's merger with Allied was material, nonpublic information and that directing her spouse to trade in advance of the announcement of the merger agreement breached the duty that she owed to SunSource and its shareholders. As a result of the trading in advance of the announcement, Karaoulis had profits of $1,428. Karaoulis has consented to the entry of a final judgment enjoining her from violating Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, ordering her to disgorge $1,847 in trading profits plus pre-judgment interest, and ordering her to pay a civil penalty in the amount of $1,428.
SEC Complaints in this Matter: