U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22937 / March 7, 2014
Securities and Exchange Commission v. Andrew W. Jacobs and Leslie J. Jacobs II, (United States District Court for the Northern District of Ohio, Civil Action No. 1:13-CV-1289)
Jury in Cleveland Finds Brothers Engaged in Insider Trading
The Securities and Exchange Commission has obtained a favorable verdict from a jury in the Northern District of Ohio finding that Andrew W. Jacobs of Lancaster, Pa., and his brother Leslie J. Jacobs II of Cleveland, Ohio, committed insider trading in connection with the December 2009 tender offer for Chattem Inc., a Chattanooga, Tenn.-based distributor of pharmaceutical products.
In its complaint, the SEC alleged that A. Jacobs provided L. Jacobs material nonpublic information about the tender offer and that L. Jacobs then traded on the basis of the information he received from his brother. A. Jacobs learned of the tender offer in a confidential conversation with his brother-in-law, who at the time was a Chattem executive. The executive, with whom A. Jacobs had been friends since business school, requested that A. Jacobs keep their discussion confidential, and he agreed to do so. Nonetheless, the next day, A. Jacobs called his brother L. Jacobs and told him that Chattem was going to be acquired. A few days later, L. Jacobs purchased 2000 shares of Chattem, and he sold those shares after the public announcement of the acquisition for an illicit profit of $49,457.21.
After a six-day trial, the jury yesterday found in favor of the SEC on the claims under Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3 thereunder. These provisions prohibit insider trading in connection with a tender offer. The jury found in favor of the defendants on the claims under Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder.
The trial was presided over by U.S. District Judge Solomon Oliver Jr. The court will now decide what remedies are warranted based on the jury’s verdict. In its complaint, the SEC sought permanent injunctions, disgorgement with prejudgment interest, and civil monetary penalties pursuant to Section 21A of the Exchange Act. The SEC also sought an officer and director bar against A. Jacobs, who was a high-level executive of a public company at the time of the tip. The case was tried by Kristin B. Wilhelm and Joshua A. Mayes of the SEC’s Atlanta Regional Office and Stephan J. Schlegelmilch of the SEC’s headquarters in Washington, D.C.
See Litigation Release No. 22723 / June 11, 2013