U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20306 / September 27, 2007
SEC v. Gregg Ashley Smith and Elliot Joel Smith, Civil Action No. 07-CV-8394 (S.D.N.Y.)
SEC Charges Father and Son Securities Professionals with Insider Trading in the Securities of Three Issuers
The Securities and Exchange Commission today announced the filing of a settled civil injunctive action against a father and son pair of Manhattan-based securities professionals for engaging in illegal insider trading in the securities of three public issuers between December 2001 and December 2002. The Commission's complaint, filed in the United States District Court for the Southern District of New York, alleges that, during the period of misconduct, the son, a former investment banker with Banc of America Securities, LLC ("BAS"), obtained material, nonpublic information about three issuers who were clients of BAS and tipped his father, who then traded in the securities of those issuers. At the time of the trading, the father was employed by Broadband Capital Management, LLC, a registered broker-dealer through whom he placed his illegal trades. The complaint also alleges that twice during the Commission staff's investigation, the father-with the son's assistance-created fraudulent documents that the father provided to the Commission staff in an effort to mislead the Commission staff as to the reasons for his trades in two of the issuers.
Named in the complaint are:
Elliot Joel Smith ("E. Smith"), age 75 and a resident of New York, New York. During the conduct charged in the complaint, E. Smith was employed as the Managing Director of Broadband Capital Management, LLC. Previously, he was a founding member and Director of the Chicago Board of Options Exchange, Director of the American Stock Exchange, a Board member of the Securities Industry Automation Corporation, and a Director of the New York Institute of Finance.
Gregg Ashley Smith ("G. Smith"), age 37 and a resident of New York, New York. During the conduct charged in the complaint, G. Smith was employed as a Principal in BAS' Equity Private Placements Group.
The Commission's complaint alleges that:
From December 2001 to December 2002, G. Smith, while employed as a Principal in the Equity Private Placements Group at BAS, learned material, nonpublic information about Aspen Technology, Inc. ("Aspen"), Regeneration Technologies, Inc. ("Regeneration"), and Triangle Pharmaceuticals, Inc. ("Triangle") while coordinating private investments in public equities stock offerings, also known as PIPES, for each of the companies. G. Smith then breached his fiduciary duty to BAS by tipping E. Smith with the material, nonpublic information. Upon being tipped by his son, and prior to the information being publicly disclosed, E. Smith purchased shares of the common stock of Aspen, Regeneration, and Triangle in brokerage accounts over which he exercised control. When the information was later disclosed, the prices of the respective securities rose and E. Smith or accounts he controlled profited. In connection with his purchases of Aspen, Regeneration, and Triangle common stock, E. Smith obtained an aggregate of over $204,476 in ill-gotten gains.
Additionally, on two separate occasions during the Commission staff's investigation, E. Smith, with the assistance of G. Smith, created fraudulent documents that E. Smith provided to the Commission staff in an effort to mislead the staff as to the reasons for his trades in the stock of two of the issuers.
With filing of the Commission's action, each of the defendants has agreed, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining each from future violations of Sections 10(b) and 14(e) of the Securities Exchange of 1934 and Rules 10b-5 and 14e-3, thereunder and holding each jointly and severally liable for disgorgement of $204,476 plus prejudgment interest of $72,511.48. Additionally, E. Smith and G. Smith have agreed to pay civil penalties of $408,952 and $204,476, respectively.
In a related administrative proceeding and without admitting or denying the Commission's findings, E. Smith has consented to the issuance of a Commission Order barring him from association with any broker-dealer. Similarly, in a separate administrative proceeding and without admitting or denying the Commission's findings, G. Smith has consented to issuance of a Commission Order barring him from association with any broker, dealer, or investment adviser for five years.