UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17306 / January 14, 2002
Securities and Exchange Commission v. Felix Litvinsky and Olga S. Litvinsky, 02 Civ. 0312 (LMM) (S.D.N.Y.)
SEC CHARGES TWO WITH INSIDER TRADING
The Securities and Exchange Commission today filed an injunctive action in the United States District Court for the Southern District of New York, alleging that Felix Litvinsky and Olga S. Litvinsky, a former employee of J.P. Morgan Securities, Inc. ("J.P. Morgan"), engaged in illegal insider trading in advance of the July 30, 1998 announcement that BetzDearborn Inc. and Hercules Inc. had agreed to merge. The complaint alleges that Olga Litvinsky, an administrative assistant at J.P. Morgan which was advising BetzDearborn about the merger, learned confidential information regarding the merger and tipped her then-boyfriend and roommate, and now husband, Felix Litvinsky. According to the complaint, on July 28, Felix Litvinsky purchased BetzDearborn common stock and call options that he sold after merger announcement, realizing $56,239 in illegal profits.
The complaint alleges that from April 1998 through the July 30, 1998 merger announcement, BetzDearborn and Hercules conducted merger negotiations in secret. Olga Litvinsky's supervisor, a managing director, was responsible for coordinating all services provided by J.P. Morgan to BetzDearborn in connection with the merger with Hercules. As the managing director's assistant, Olga Litvinsky had full access to all of his files and documents concerning BetzDearborn. Olga Litvinsky learned of the pending merger of BetzDearborn with Hercules prior to the merger announcement on July 30, 1998. The complaint further alleges that on or before July 28, 1998, Olga Litvinsky told Felix Litvinsky that BetzDearborn was going to be acquired by Hercules. On July 28, 1998, Felix Litvinsky bought BetzDearborn stock and options in two different accounts. Felix Litvinsky bought 60 shares and 20 August 40 out of the money call options. On July 30, 1998, after the merger announcement, Felix Litvinsky sold all of his BetzDearborn securities, realizing a profit of $56,238.75.
On July 30, 1998, BetzDearborn and Hercules announced that they agreed to merge and that Hercules would pay $72 per share for all outstanding BetzDearborn shares. After the announcement, BetzDearborn common stock opened at $68.25 per share, an increase of $32.375, or approximately ninety percent (90%), over the prior day's closing price.
The Commission alleges that as a result of the conduct described above, Felix Litvinsky and Olga Litvinsky violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. In its action, the Commission is seeking permanent injunctions, disgorgement of the illegal trading profits, prejudgment interest, and civil penalties.
Felix Litvinsky, age 36, and Olga S. Litvinsky, age 42, reside in Fairlawn, New Jersey.
Without admitting or denying the facts alleged in the complaint, the defendants have agreed to a settlement filed with the court for court approval under which they will: (1) consent to the entry of permanent injunctions, without admitting or denying the allegations against them, permanently enjoining them from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and (2) pay, jointly and severally, disgorgement of $56,239 plus prejudgment interest, but payment of all but $20,000 has been waived based upon their sworn financial statement. The settlement also provides that the court will not impose penalties based on their sworn financial statement.
The Commission acknowledges the assistance provided by the Pacific Stock Exchange in the investigation of this matter. This is the Commission's fourth insider trading case concerning trading before the merger of BetzDearborn and Hercules. See SEC v. Rodolfo Luzardo, et al., 01 Civ. 9206 (DC) (S.D.N.Y.) (filed October 18, 2001) (Litigation Release No. 17197), SEC v. Joseph F. Doody IV, et al., 01 Civ. 9879 (JK) (S.D.N.Y.) (filed November 8, 2001) (Litigation Release No. 17225) and SEC v. Patricia A. Bugenhagen, et al., 01 Civ. 6538 (E.D.PA.) (filed December 18, 2001) (Litigation Release No. 17278). The Commission's investigation into insider trading before the announcement of the merger of BetzDearborn and Hercules is continuing.