SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20720A / September 16, 2008
Securities and Exchange Commission v. James D. Zeglis, Gautum Gupta, Lance D. McKee and Jim W. Dixon, Civil Action No. 08-CV-5259 (ND Ill. September 16, 2008)
The Securities and Exchange Commission (“Commission”) announced today that it filed a Complaint in the United States District Court for the Northern District of Illinois against James D. Zeglis (“Zeglis”) and Gautum Gupta (“Gupta”), Lance D. McKee (“McKee”) and Jim W. Dixon (“Dixon”) alleging fraud in connection with insider trading in the securities of Georgia-Pacific Corporation by three individuals who received tips directly or indirectly from defendant Zeglis. The Complaint alleges that Zeglis misappropriated material nonpublic information from his brother, a member of Georgia-Pacific’s board of directors, and further alleges that on November 10, 2005, three days before a public announcement that Georgia-Pacific had agreed to be acquired by Koch Industries, Inc., Zeglis tipped Gupta and Dixon, both of whom purchased Georgia-Pacific securities. Gupta, in turn, tipped McKee, who also purchased Georgia-Pacific securities.
Further, the Complaint alleges that after Zeglis tipped Dixon, Dixon purchased Georgia-Pacific options on Zeglis’s recommendation, and paid Zeglis a kickback from his ill-gotten gains. Within moments after meeting with Zeglis, Gupta transferred $400,000 from a commodities brokerage account to his bank account and placed a 40 second phone call to McKee. After the phone call from Gupta, McKee almost immediately purchased 500 shares of Georgia-Pacific stock, a stock he had never previously purchased. Within a few hours, Gupta had opened a brokerage account, transferred the $400,000 into his new brokerage account, and made his first stock purchase in ten years by purchasing 20,000 shares of Georgia-Pacific. The following day, Gupta purchased an additional 10,000 shares and then purchased 241 short term call options in Georgia-Pacific, increasing his investment in Georgia-Pacific securities to more than $1 million. Further, the Complaint alleges that on Sunday, November 13, 2005, Koch Industries, Inc. (“Koch”) publicly announced a definitive agreement for a Koch subsidiary to make a cash tender offer for all shares of Georgia-Pacific. The following day, Georgia-Pacific’s stock price increased 36% in response to the announcement. Gupta and McKee then sold their Georgia-Pacific securities, realizing profits of $689,401 and $7,157.60, respectively. Dixon also realized a profit of $116,000 from the sale of Georgia-Pacific options. Thereafter, over the course of several months, Dixon paid Zeglis approximately $25,000 of his profits.
The Complaint further alleges that the defendants violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The Commission seeks: (i) permanent injunctions against future violations; (ii) disgorgement of ill gotten gains with prejudgment interest thereon and (iii) imposition of civil penalties against the defendants. With its complaint, the Commission also filed stipulated consents to final judgments by defendants McKee and Dixon. McKee and Dixon have stipulated to final judgments against them which would grant full injunctive relief sought by the Commission. In addition, the judgments to which McKee and Dixon have consented would, when entered by the Court, compel each of them to pay full disgorgement of their respective ill gotten gains with prejudgment interest thereon. In addition to his disgorgement, McKee has consented to pay a civil penalty in the amount of his ill-gotten gain, and Dixon has consented to pay a civil penalty in the amount of $50,000.
The Commission acknowledges the assistance of the Financial Industry Regulatory Authority in this matter.