UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17629 / July 24, 2002
Securities and Exchange Commission v. Edward J. Smith and Robert W. Banning, Civil Action No. 02-1093-A (E.D. Va.)
SEC CHARGES TWO VIRGINIA MEN WITH INSIDER TRADING
Edward J. Smith and Robert W. Banning Charged With Securities Fraud
The Securities and Exchange Commission today charged Edward J. Smith of Springfield, Virginia, and Robert W. Banning of Arlington, Virginia, with insider trading in advance of the public announcement on July 26, 1999, that Softworks, Inc., would post a loss of $0.02 per share for the second quarter of 1999. The SEC's complaint charges that by selling Softworks stock before the earnings announcement, the two men avoided losses totalling $67,141. In addition, the complaint charges that Smith sold Softworks stock short before the announcement and made a profit of $19,575.
Simultaneous with the filing of the complaint, both men settled with the Commission. Without admitting or denying the allegations made by the Commission, Banning consented to the entry of an order enjoining him from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The order requires Banning to pay $60,507.17 in disgorgement and prejudgment interest, and pay a civil penalty of $48,500.31. Without admitting or denying the allegations made by the Commission, Smith consented to the entry of an order enjoining him from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The order requires Smith to pay $38,215.63 in disgorgement, but waives payment and does not impose a civil penalty based on Smith's sworn representations regarding financial condition.
The complaint alleges that Smith misappropriated confidential information regarding the second-quarter loss through his position or contacts as a security consultant for Softworks. According to the complaint, after misappropriating the information, Smith placed two calls to Banning, a close family friend who is an owner of car dealerships in Maryland. Within fifteen minutes after the calls, Banning called his broker and placed an order to sell all of his Softworks stock. The complaint alleges that by selling his shares before Softworks publicly announced its second-quarter loss, Banning unlawfully avoided a loss of approximately $48,500. The next day, Smith sold all of his shares of Softworks stock, unlawfully avoiding a loss of approximately $18,641. One day after his sale, Smith placed his first-ever trade on margin, selling Softworks stock short. Both Banning and Smith sold Softworks stock at prices above $10.00. After Softworks publicly announced its second-quarter loss on July 26, 1999, its stock price dropped by over a third from its closing price on the previous trading day, closing at approximately $5.28 per share. The complaint alleges that after the announcement, Smith covered his short sale, making an unlawful profit of approximately $19,575.
The Commission gratefully acknowledges the assistance provided by NASD Regulation, Inc., in the investigation of this matter.