U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19930 / December 1, 2006
SEC v. Concetta A. Donovan and David K. Donovan, Sr., (United States District Court for the District of Massachusetts, 06-MC-10454-RCL)
Commission Files Subpoena Enforcement Action Against Concetta A. Donovan and David K. Donovan, Sr.
The Securities and Exchange Commission announced today that it filed an application on November 30, 2006 in the United States District Court for the District of Massachusetts for orders to enforce investigative subpoenas served on Concetta A. Donovan ("Concetta") and David K. Donovan, Sr. ("DKD Sr.") of Marblehead, Massachusetts.
The Commission's application and supporting papers allege that, on March 22, 2005, the Commission issued a formal order of private investigation authorizing its staff to investigate, among other things, potential illegal insider trading in the securities of Covad Communications Group, Inc ("Covad"). On April 6, 2005, the Commission issued investigative subpoenas to Concetta and DKD Sr. The subpoenas required Concetta and DKD Sr. to produce documents relevant to the investigation and to appear before the Commission staff for testimony. The Commission alleges that, despite a number of accommodations offered to Concetta and DKD Sr., as of the date of its application, they have refused to produce the subpoenaed documents, and Concetta has refused to appear for testimony. According to the Commission's application, neither Concetta nor DKD Sr. have a valid justification for their failure to comply with the subpoenas, and court orders are necessary to compel them to produce the subpoenaed documents and to compel Concetta to appear for testimony.
The Commission alleges that Concetta and DKD Sr.'s son, David K. Donovan, Jr. ("DKD, Jr."), was an equity trader for FMR Co., Inc. ("FMR Co."), a Boston, Massachusetts-based investment adviser to Fidelity Investments' family of mutual funds and other institutional clients. According to the Commission's application and supporting papers, during a period of approximately one month in July and August 2003, DKD Jr. accessed information in FMR Co.'s internal trade database about Covad stock on 44 occasions and thereby learned that FMR Co. was purchasing and intended to continue purchasing substantial amounts of Covad stock for its advisory clients. When DKD Jr. accessed FMR Co.'s internal trade database concerning Covad stock at 7:48 a.m. on August 5, 2003, for example, he would have been able to determine that FMR Co. had pending orders to buy 1,966,400 shares of Covad stock and no pending orders to sell any Covad stock. The Commission alleges that on August 5 and 6, 2003, at least four telephone calls were placed from DKD Jr.'s work number at FMR Co. to his parents' home, and within fifteen minutes of two of those telephone calls, purchases of Covad stock were placed in a brokerage account in Concetta's name. According to the Commission's application and supporting papers, from August 5 through August 7, 2003, a total of 55,000 shares of Covad stock were purchased in Concetta's brokerage account, resulting in profits in the amount of approximately $89,775.
A hearing on the Commission's application has not yet been scheduled.