Litigation Release No. 22468 / September 4, 2012
SEC v. Thomas D. Melvin, et al. Civil Action No. 1:12-cv-02984-CAP, United States District Court, Northern District of Georgia
SEC Charges Griffin, Georgia Accountant and Three Others with Insider Trading
On August 28, 2012, the Securities and Exchange Commission filed a civil injunctive action against Thomas D. Melvin (“Melvin”), a Griffin, Georgia based CPA; Michael S. Cain (“Cain”), a registered representative associated with a Commission-registered broker-dealer; Joel C. Jinks (“Jinks”), a one-time candidate for local sheriff; and Peter C. Doffing (“Doffing”). The Commission alleges that Melvin disclosed material non-public information about the pending tender offer for Chattem, Inc. (“Chattem”) securities to Cain and Jinks. The Commission also alleges that Cain tipped Jinks with this same information. The Commission further alleges that Cain, Jinks and Doffing traded in the securities of Chattem based on that material non-public information.
According to the Commission’s complaint, on December 21, 2009, Sanofi-Aventis (“Sanofi”), a French pharmaceutical company, announced its intent to make a tender offer for Chattem, a Tennessee-based distributor of over-the-counter pharmaceutical products, at the price of $93.50 per share (“Announcement”). Shares of Chattem closed 32.60% higher on the day of the Announcement than the prior trading day’s close of $69.98 and volume increased more than 3,000% to 10.3 million shares.
The Commission alleges that in early December 2009, several weeks before the Announcement, an independent board member of Chattem who owned Chattem options that would automatically exercise in the event of an ownership change at Chattem, initiated a series of confidential conversations and meetings with his longtime accountant, Melvin, to discuss potential methods of ameliorating the effect of an acquisition of Chattem on his tax liability. The Chattem board member told Melvin sufficient facts such that, given Melvin’s knowledge of the board member’s affairs, Melvin would have clearly known that the board member was discussing Chattem. Melvin and the Chattem board member also discussed the price impact of the tender offer on the board member’s options.
The Commission further alleges that Melvin misappropriated material non-public information regarding the impending tender offer for Chattem securities. Within days of his first meeting with the board member, Melvin disclosed material non-public information about the impending tender offer to Jinks and Cain. Jinks and Cain traded in Chattem securities based on the material non-public information disclosed by Melvin, and Cain tipped Doffing, who also traded.
The Commission’s complaint, filed in the United States District Court for the Northern District of Georgia, alleges that each defendant violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, and seeks against each defendant permanent injunctions, disgorgement with prejudgment interest and civil monetary penalties pursuant to Section 21A of the Exchange Act.