U.S. SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16825 / December 12, 2000
Securities and Exchange Commission v. Lorraine K. Cassano, Civil Action No. 99-CV-3822 (S.D.N.Y.)
SEC OBTAINS JURY VERDICT AGAINST FOUR INSIDER TRADERS IN LOTUS SECURITITES
The Securities and Exchange Commission today announced that on December 7, 2000, a federal jury found that four New York-area defendants were liable for engaging in illegal insider trading in the stock of Lotus Development Corporation in 1995. The jury found that James Ribellino of Marlboro, NJ; Gerard Wells of Port Washington, NY; Ralph Serpe of East Northport, NY; and Claudio Spinelli of Staten Island, NY, each bought Lotus call options based on material non-public information that IBM intended to take over Lotus. Ribellino, Wells and Serpe, fifth-tier tippees who traded together, made $81,496 in illegal profits. Claudio Spinelli, a seventh-tier tippee, made $35,870 in illegal profits.
The verdicts were returned after a six and a half day trial in federal court in the Southern District of New York, presided over by the Hon. Louis Kaplan. The trial resulted from a complaint the Commission filed on May 26, 1999, charging a total of 25 defendants with insider trading in Lotus options and stock. Seventeen of the 25 defendants settled with the Commission prior to the trial, and of the eight defendants who went to trial, one settled the Commission's charges on the last day of trial, four were found liable for insider trading, and three defendants were found not liable.
In its complaint, the Commission alleged that Lorraine Cassano, an IBM secretary, told her husband, Robert Cassano, about IBM's secret plan to acquire Lotus. Robert Cassano told his friend, Jerry Mazzone, who purchased Lotus stock and call options on June 2, 1995. Jerry Mazzone then tipped his cousin, Peter Mazzone, and two coworkers, Richard Cofrancesco and John J. Melville; all three purchased Lotus call options on June 2. The complaint further alleged that Cofrancesco told his cousin, Domenico Alba, about the illegal tip and Domenico Alba told his friend, Josephine DeCicco and his business partner, Domenico Spinelli, who then told his brother, Claudio Spinelli. Cofrancesco also told three business acquaintances, James Ribellino, Gerard Wells and Ralph Serpe, about the IBM takeover plan and Ribellino, Wells and Serpe jointly purchased Lotus call options on June 2. When IBM announced its hostile tender offer for Lotus on June 5, 1995, Jerry Mazzone, Peter Mazzone, Cofrancesco, Melville, Alba, Domenico Spinelli, DeCicco, Claudio Spinelli, Ribellino, Wells and Serpe made over $525,000 in illegal profits. The total profits of all 25 defendants exceeded $1 million.
In the weeks before the trial began, seven defendants agreed to settle the Commission charges that they engaged in insider trading in advance of IBM's takeover of Lotus Development Corporation. Specifically, Domenico Alba of Staten Island, New York, and Josephine DeCicco of Staten Island, New York, each agreed to disgorge $48,410, plus $24,226 in pre-judgment interest and to pay a civil penalty of $48,410. Domenico Spinelli of Staten Island, New York agreed to disgorge $48,410, plus pre-judgment interest of $24,226, and post-judgment interest of $6,206. The Commission waived the payment of pre-judgment interest and did not seek a civil penalty based on his demonstrated financial inability to pay. Peter Mazzone of Staten Island, New York agreed to disgorge $82,794, plus $47,085 in pre-judgment interest and to pay a civil penalty of $201,162. Jerry Mazzone of Staten Island, New York agreed to disgorge $45,112, plus $25,655 in pre-judgment interest. Richard Cofrancesco agreed to disgorge $24,119, plus pre-judgment interest. Further, one defendant, John J. Melville of Spotswood, NJ, settled with the Commission on the last day of trial. Melville agreed to disgorge $113,750, plus $66,018 in pre-judgment interest, but will pay only $50,000 of this amount and will not be assessed a penalty based on his demonstrated financial inability to pay.
In their settlements, Melville and Peter Mazzone consented to the entry of a permanent injunction prohibiting future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Alba, DeCicco, Domenico Spinelli, Melville and Peter Mazzone have also consented to the entry of a permanent injunction prohibiting future violations of Section 14(e) of the Exchange Act and Rule 14e-3 thereunder. In consenting to the entry of the civil injunctions, the defendants neither admitted nor denied the Commission's substantive allegations against them.
At trial, the jury determined that Ribellino, Wells, Serpe and Claudio Spinelli violated Section 14(e) of the Exchange Act and Rule 14e-3 thereunder, the tender offer insider trading provisions of the federal securities laws. The court will determine at a later date the appropriate sanctions against Ribellino, Wells, Serpe, and Claudio Spinelli, and any additional disgorgement and monetary penalty against Jerry Mazzone and Cofrancesco.
The three defendants found not liable at trial were Doreen Tribiano, Ronald DeTommaso and Diane Scipioni, registered representatives at Russo Securities.