U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21678 / September 30, 2010

Securities and Exchange Commission v. Rex C. Steffes, Cliff M. Steffes, Rex R. Steffes, Bret W. Steffes, Robert J. Steffes and W. Gary Griffiths, Case No. 1:10-cv-06266 (N.D. Ill., filed September 30, 2010)

The Securities and Exchange Commission today announced that it has filed a complaint in the United States District Court for the Northern District of Illinois against Rex C. Steffes, Cliff M. Steffes, Rex R. Steffes, Bret W. Steffes, Robert J. Steffes and W. Gary Griffiths for engaging in unlawful insider trading in the securities of Florida East Coast Industries, Inc. in advance of the May 2007 public announcement that the company would be acquired by an affiliate of the Fortress Investment Group, LLC.

The Commission’s complaint alleges that Gary Griffiths and Cliff Steffes learned material, non-public information about Florida East Coast’s acquisition through their employment at a freight railway that was a wholly-owned subsidiary of Florida East Coast. The complaint further alleges that Gary Griffiths and Cliff Steffes tipped Rex C. Steffes, who is Cliff’s father and Gary Griffiths’s brother-in-law, about the upcoming acquisition of Florida East Coast. Other family members tipped included Bret Steffes and Rex R. Steffes (sons of Rex C. Steffes and brothers of Cliff Steffes) and Robert J. Steffes (brother of Rex C. Steffes). The complaint alleges that several other individuals were tipped as well. Following the tips, the traders purchased $1.6 million in Florida East Coast stocks and options, which generated more than $1 million in illicit profits after the acquisition of the company.

The Commission charges the defendants with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks permanent injunctions, disgorgement plus prejudgment interest and civil penalties. Without admitting or denying the SEC’s allegations, Robert J. Steffes has consented to a court order that would permanently enjoin him from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and require him to pay disgorgement of $104, 981, prejudgment interest of $15,951 and a civil penalty of $104,981.

The SEC acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) and the Options Regulatory Surveillance Authority (ORSA) in this matter.

See Also: SEC Complaint

Update: On January 27, 2014 a federal jury found that Rex C. Steffes, Cliff M. Steffes, Bret W. Steffes and Rex R. Steffes were not liable for violating the securities laws. On April 10, 2012, the Commission obtained a consent judgment against Defendant W. Gary Griffiths, Rex C. Steffes' brother-in-law. Without admitting or denying the SEC's allegations, Griffiths agreed to pay a civil penalty of $120,000 in order to settle the Commission's claims that he tipped Rex C. Steffes about the upcoming acquisition of Florida East Coast Industries, Inc. Previously, without admitting or denying the SEC's allegations, Robert J. Steffes consented to a court order that permanently enjoins him from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and require him to pay disgorgement of $104,981, prejudgment interest of $15,951 and a penalty of $104,981.

 
http://www.sec.gov/litigation/litreleases/2010/lr21678.htm

Last modified: 02/05/2014