SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17395 / March 6, 2002
SECURITIES AND EXCHANGE COMMISSION v. HUGO SALVADOR VILLA MANZO AND MULTINVESTMENTS, INC., Civil Action No. 02CV 1766 (S.D.N.Y.)(filed March 6, 2002)
SEC SUES HUGO VILLA AND U.S BROKER-DEALER
MULTINVESTMENTS, INC. FOR INSIDER TRADING
DEFENDANTS TO PAY OVER $1.5 MILLION IN
DISGORGEMENT AND PENALTIES
On March 6, 2002, the Securities and Exchange Commission filed a settled civil injunctive action in the United States District Court for the Southern District of New York, alleging that Hugo Salvador Villa Manzo ("Villa") a Mexican businessman, and Multinvestments, Inc. ("Multinvestments"), a U.S. broker-dealer based in San Antonio, Texas, engaged in highly lucrative insider trading prior to the June 28, 1999 public announcement that Nalco Chemical Company would be acquired by Suez Lyonnaise des Eaux, a French company.
Villa is the Chairman and part-owner of MultiValores Grupo Financiero, S.A. de C.V., a Mexican public company that indirectly owns Multinvestments, and in 1999 was the Chairman of Multinvestments.
The Commission's Complaint alleges that Villa was tipped by Jose Luis Ballesteros, a director of Nalco who has since died. The Complaint specifically alleges that Jose Luis Ballesteros violated his fiduciary duties to Nalco by providing Villa with material, nonpublic information about the proposed acquisition by Suez. In response to this tip, Villa instructed one of his senior colleagues at Multinvestments to buy Nalco stock for Multinvestments' proprietary account. Pursuant to Villa's instructions, Multinvestments, through its proprietary account, purchased 50,000 Nalco shares for $2,015,625. In purchasing Nalco shares, Multinvestments used margin privileges and also used the maximum amount available in its proprietary account without violating the firm's net capital requirements.
On June 28, 1999, Nalco and Suez jointly announced that they had signed a definitive merger agreement, calling for Suez to pay $53.00 per Nalco share, representing a $10.50 premium over the June 25 closing price of $42.50. The Complaint alleges that on June 28, 1999, Multinvestments sold 40,000 Nalco shares at $51.50 and, on the following day, sold the remaining 10,000 Nalco shares at $51.75 per share. As a result of these transactions, unlawful profits totaling $558,750 were realized.
Without admitting or denying the allegations of the Commission's Complaint, Villa and Multinvestments have consented to pay a total of $1,503,471.83, representing disgorgement of $558,750, prejudgment interest in the amount of $106,596.83, and a one and one half-time penalty of $838,125. In addition, Villa and Multinvestments have consented to the entry of a permanent injunction prohibiting them from further violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934, and Rules 10b-5 and 14e-3 thereunder. Villa has also agreed to be barred from the securities industry.
This is the third action filed by the Commission arising out of trading in the securities of Nalco. In two separate actions filed on May 8, 2001 and February 7, 2002, the Commission filed complaints alleging that Jose Luis Ballesteros also purchased Nalco stock and tipped others. Defendants named in the first action purchased 263,329 Nalco shares at a cost of over $9.8 million and made illegal profits of more than $3.7 million. SEC v. Jorge Eduardo Ballesteros Franco, et al., Civil Action No. 01CV 3872 (JGK) (S.D.N.Y.) (filed May 8, 2001); SEC Press Release No. 2001-43 (May 8, 2001). The defendants named in the second action invested over $1.8 million in Nalco stock and made illegal profits of $776,725. SEC v. Pablo Escandon Cusi and Lori Ltd., Civil Action No. 02CV 0971 (S.D.N.Y.) (filed February 7, 2002); Litigation Release No. 17356 (February 7, 2002).
All told, the settling defendants in all three actions have agreed to pay over $7.9 million to settle SEC charges. The Commission's claims against two of the individual defendants (and the entities through which they traded) in the May 8, 2001 action are not settled.
The Commission wishes to thank the United States Attorney's Office for the Southern District of New York, the U.S. Customs Service, the Swiss Federal Office of Justice, the New York Stock Exchange and the Isle of Jersey Financial Services Commission for their cooperation and assistance in this matter.
The Commission is continuing its investigation in this matter.