U.S. SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17404 / March 7, 2002
Securities and Exchange Commission v. Anthony Chrysikos and Michael Martello, Defendants, and Marie Martello, Relief Defendant, 02 CV 1825 (HB) (S.D.N.Y. filed March 7, 2002).
COMMISSION CHARGES VICE PRESIDENT OF GE CAPITAL CORP WITH TIPPING, AND AMERICAN KUNG-FU INSTRUCTOR WITH INSIDER TRADING, AHEAD OF GE CAPITAL'S TENDER OFFER FOR HELLER FINANCIAL, INC.
Commission Obtains Order Freezing Accounts That Received Proceeds of Illegal Trades
The Commission today filed a complaint in the United States District Court for the Southern District of New York against Anthony Chrysikos and Michael Martello, alleging that they engaged in tipping and insider trading immediately ahead of the July 30, 2001, initial public announcement of a contemplated business combination between General Electric Capital Corp and Heller Financial, Inc. The Commission's complaint also named Michael Martello's mother, Marie Martello, as a relief defendant, and the Commission's filings with the District Court sought certain emergency relief, including a freeze of certain brokerage and bank accounts that received proceeds from the illegal trades. U.S. District Judge Leonard B. Sand today signed an Order granting the emergency relief and directing the defendants and the relief defendant to appear before the District Court on March 15, 2002, at 2:00 p.m., to show cause why the relief should not be continued until final resolution of the Commission's case in chief.
The Commission's complaint alleges that Chrysikos, a Vice President in GE Capital's Aircraft Services Division and a member of the GE Capital deal team for the Heller Financial transaction, conveyed material nonpublic information to Michael Martello, an American Kung-Fu instructor and Web page designer, by means of telephone conversations with Michael Martello's mother on July 26 and 27, 2001. The Commission's complaint further alleges that Chrysikos acquired the material nonpublic information in the course of his employment at GE Capital, a wholly owned subsidiary of General Electric Company, and then tipped Michael Martello, in breach of Chrysikos' duties to General Electric Company and to its shareholders.
The complaint alleges the following facts: On July 26, 2001, at 9:48 p.m. E.S.T., a phone call was placed from Chrysikos' home phone in New Jersey to Marie Martello in Whitestone, New York. The next morning, at 8:25 a.m. E.S.T. and again at 9:55 a.m. E.S.T., calls were placed from Marie Martello to Michael Martello, who was in Taiwan at the time. At 11:14 a.m. E.S.T., a phone call was placed from the Whitestone residence to Chrysikos' direct dial number at GE Capital in Connecticut. Three minutes later, at 11:17 a.m. E.S.T., another phone call was placed from the Whitestone residence to Taiwan. Approximately twenty minutes later, at 11:38 a.m. E.S.T., a call was placed to the Whitestone residence from GE Capital in Connecticut. Shortly thereafter, at 12:16 p.m. E.S.T., Marie Martello deposited $9,200 in cash at a Queens branch office of Citibank. The cash was deposited into a Citibank account held in Michael Martello's name. Twenty-one minutes later, at 12:37 p.m. E.S.T., Michael Martello began a dialogue by phone from Taiwan with a registered representative at Citicorp Investment Services, where Michael Martello maintained a brokerage account. During the call, Michael Martello stated that he wanted to buy the maximum number of call options that he could with the approximately $11,000 he now had in his Citibank bank account, an account that is linked to his Citicorp Investment Services account. After some back-and-forth, Michael Martello ultimately purchased 130 Heller Financial call options, leaving approximately $30 remaining in his account. On July 30, 2001, the next trading day, GE Capital announced that it had entered into a definitive agreement to acquire Heller Financial for a cash tender offer of $5.3 billion, or $53.75 per share. On July 31, 2001, Michael Martello sold all 130 call options for $168,274.87, yielding a total realized profit of $157,259.09. On that same day, Michael Martello transferred the $168,274.87 to a Citibank account held in Marie Martello's name. Between August 27, 2001, and October 22, 2001, Marie Martello withdrew a total of $34,000 from the Citibank account. Michael Martello is currently living in Belgium, and some of the proceeds have been transferred to him overseas.
The Commission alleges that Chrysikos and Michael Martello, through tipping and insider trading, each violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5 and 14e-3. In its action, the Commission is seeking a permanent injunction, disgorgement, with prejudgment interest thereon, and civil penalties from each of the defendants. The Commission also sought, and today obtained, a temporary restraining order freezing certain Citicorp and Citibank brokerage and bank accounts that are held in the name of Michael Martello or Marie Martello and that received proceeds from the illegal trades.
The Commission acknowledges the assistance of the American Stock Exchange in the investigation of this matter.