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U.S. Securities and Exchange Commission

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 20222 / August 2, 2007

SEC v. Joseph A. Frohna (United States District Court for the Eastern District of Wisconsin No.07-C-0702)

SEC Files Settled Charges Against a Mutual Fund Manager for Insider Trading That Allowed the Mutual Fund That He Managed to Avoid Close to a Million Dollars in Losses

The Securities and Exchange Commission today announced that it filed a Complaint in the U.S. District Court for the Eastern District of Wisconsin on August 1, 2007 against Joseph A. Frohna ("Joe Frohna"), a former portfolio manager with U.S. Bancorp Asset Management, Inc., now known as FAF Advisers, Inc.. The Complaint alleges that Joe Frohna, a resident of Waukesha, Wisconsin, engaged in insider trading by causing the mutual fund that he managed to sell all of its shares of XOMA, Ltd. ("XOMA") on the basis of material, nonpublic information that he misappropriated from his brother. Specifically, the Complaint alleges that Joe Frohna's brother, with whom Joe Frohna had a relationship of trust and confidence, was the leader of a bio-equivalence study for a drug being developed by XOMA and Genentech, Inc. ("Genentech") (the "Bio-Equivalence Study"). The Bio-Equivalence Study was one of the keys to XOMA's stock value because bio-equivalence needed to be established for FDA approval and for this drug to be sold to the general public. Joe Frohna knew this information. On April 3, 2002, Joe Frohna's brother learned that the Bio-Equivalence study was unsuccessful. Later that same day, Joe Frohna called his brother and learned that the Bio-Equivalency Study was unsuccessful. The next morning, on April 4, 2002, Joe Frohna caused the fund he managed, First American Investment Fund, Inc's Micro Cap Fund (the "Micro Cap Fund"), to aggressively sell all of its 332,000 XOMA shares. The following day, April 5, 2002, XOMA and Genentech publicly announced that the Bio-Equivalence Study was unsuccessful. The price of XOMA's stock fell 42% that day, from $7.63 per share to a closing price of $4.42 per share. As a result of Joe Frohna's insider trading, the Micro Cap Fund avoided a loss of $954,776. The Complaint alleges that Joe Frohna's insider trading violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.

Joe Frohna, without admitting or denying the allegations in the Complaint, consented to the entry of a Final Judgment, subject to the Court's approval, in which he is permanently enjoined from future violations of the antifraud provisions of the federal securities laws, and he is ordered to pay disgorgement in the amount of $954,776, plus prejudgment interest in the amount of $315,286.57, and a one-time civil penalty in the amount of $954,776.

SEC Complaint in this matter

 

http://www.sec.gov/litigation/litreleases/2007/lr20222.htm


Modified: 08/02/2007