SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16893 / February 8, 2000
SEC CHARGES CENTRAL MAINE POWER EMPLOYEE WITH INSIDER TRADING
THROUGH 401(k) PLAN
SECURITIES AND EXCHANGE COMMISSION v. David M. Brooks (United States District Court for the District of Maine, C.A. No. 01-26-B-S (filed February 8, 2000)
The Securities and Exchange Commission today announced the filing of an injunctive action against David M. Brooks for illegal insider trading in the common stock of CMP Group, Inc. The complaint alleges that Brooks, an employee of Central Maine Power Company, a subsidiary of CMP, invested more than $80,000 in the CMP stock fund through his 401(k) plan on June 14, 1999, the day before CMP publicly announced its plan to merge with Energy East Corporation. When the merger was announced, Brooks made an illegal profit of $21,117. Brooks, a resident of Winthrop, Maine, is a financial analyst for Central Maine.
The Commission's complaint alleges that the day before CMP's merger was announced, Brooks moved $80,000, representing half of his entire 401(k) assets, to the CMP stock fund while in possession of nonpublic information about the merger. According to the complaint, on Sunday, the day before his transfer, Brooks received a highly unusual call at home from his supervisor requesting him to come into the office immediately to provide certain financial information to Central Maine's Coordinator of Financial Communications. When he arrived at at the office that Sunday, Brooks allegedly noted a number of senior executives there and discussed with his supervisor his view that CMP must be planning to make a public announcement. The following day, Brooks discussed the financial information he had gathered with Central Maine's Corporate Treasurer. Immediately afterward, the complaint alleges, he ordered the move of his assets to the CMP stock fund. According to the complaint, Brooks' transfer of funds was an abrupt reversal of an investment order he had made late on Friday. Before his Sunday visit to the office, Brooks had ordered that all his 401(k) assets be transferred to a money market fund so that none would be in the CMP stock fund. After his discussions on Sunday and Monday, Brooks canceled that order and instead transferred half his assets into the CMP stock fund. The following day, June 15, Energy East and CMP publicly announced that their companies had signed a merger agreement and the price of CMP stock rose approximately 28%. The complaint alleges that through his insider trading Brooks made a profit of $21,117.
According to the complaint, Brooks violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks to enjoin Brooks from continuing to violate these laws. The Commission also seeks disgorgement of the ill-gotten gains Brooks realized, plus prejudgment interest. The Commission's complaint further seeks a civil monetary penalty from Brooks of up to three times the amount of his profits.