U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

U.S. Securities and Exchange Commission

Litigation Release No. 17645 / July 31, 2002

Securities and Exchange Commission v. Michael A. Ofstedahl, et al., United States District Court for the Northern District of California, Civil Action No. C-02-3685 RS.

The Securities and Exchange Commission ("SEC") today filed a civil lawsuit against three Northern California men who made more than $670,000 in illegal profits through insider trading in the securities of Adaptec, Inc. The SEC complaint alleges that Michael Ofstedahl, a former Adaptec Vice President, abused his position by tipping inside information to his friend and dentist, Robert Rutner, in exchange for Rutner's promise to share any trading profits. Rutner in turn tipped William Kuncz, Rutner's friend and business associate, who also traded in Adaptec securities. In a separate incident, the complaint also alleges that Rutner abused his position as a member of the board of directors of Puma Corporation, by tipping Kuncz with inside information about Puma. Kuncz traded on this information and avoided losses of more than $9,000. Simultaneous with the filing of the complaint, and without admitting or denying the allegations in the complaint, Rutner and Kuncz agreed to settle the SEC action by paying more than $1,150,000 in disgorgement, penalties and prejudgment interest, injunctions against future violations of the securities laws and other relief. The SEC litigation against Ofstedahl continues.

In addition, the U.S. Attorney's Office for the Northern District of California ("USAO") announced that a federal grand jury sitting in San Jose, California, has returned an indictment charging Ofstedahl with criminal securities fraud based on the Adaptec trades, as well as three counts of perjury, three counts of making a false statement to a government agency, and one count of obstruction of justice, based on untruthful testimony he gave during the SEC investigation.

With regard to Adaptec, which is based in Milpitas, California, the SEC complaint alleges that Ofstedahl, Rutner and Kuncz engaged in insider trading in advance of an Adaptec press release issued after the close of the stock markets on January 6, 1999. In the release, Adaptec announced that its earnings for the quarter ended December 31, 1998 would "exceed $.20" per share, well above analysts' estimates. In particular, the complaint alleges that:

  • Ofstedahl, who was then Adaptec's Vice President for Worldwide Original Equipment Manufacturer sales, had a pre-existing agreement to share inside information about Adaptec's financial performance with his friend, Rutner;
     
  • Pursuant to this agreement, Rutner agreed to trade on inside information about Adaptec and split any profits with Ofstedahl;
     
  • On the morning of January 6, 1999, Ofstedahl tipped Rutner about Adaptec's planned earnings release;
     
  • Within minutes of speaking with Ofstedahl, Rutner began buying short-term call option contracts on Adaptec stock. The call options would increase in value only if the price of Adaptec stock rose over the next several days. In all, Rutner bought 1,400 Adaptec call option contracts on January 6 at a total cost of $126,236.82;
     
  • Also on January 6, Rutner tipped his friend, Kuncz, regarding the Adaptec announcement, and Kuncz spent $22,504.75 buying Adaptec stock and short-term call options that day;
     
  • Following Adaptec's January 6 press release, on January 7 Adaptec stock rose 27% to close at $24 7/8. Ofstedahl and Rutner realized profits of $648,936.53, while Kuncz obtained profits of $26,013.20.

With regard to Puma, which is based in San Jose, California, the SEC complaint alleges that Rutner and Kuncz engaged in insider trading in advance of an August 10, 1998 press release in which Puma announced that its quarterly revenues would be below analysts' expectations. In particular, the complaint alleges that:

  • Rutner, who was then a member of Puma's board of directors, learned about the planned announcement on or before August 6, 1998;
     
  • On August 6 or 7, Rutner tipped Kuncz about the announcement;
     
  • Based on this information, on August 7, Kuncz sold all of his 5,000 shares of Puma stock, as well as all of the 1,800 shares of Puma stock held by a trust that he controlled on behalf of a family member. All of the sales were at $5 per share;
     
  • Puma issued its announcement on August 10, after the close of the stock markets. The following day, August 11, Puma stock closed at $3¼, down 28% from its prior close;
     
  • By selling Puma stock in advance of the company's August 10 announcement, Kuncz and the trust illegally avoided losses of $9,462.

In its complaint, the SEC charges the defendants with securities fraud based on their illegal insider trading. The complaint seeks disgorgement of illegal profits, plus interest, and civil monetary penalties. The complaint also seeks injunctions against the defendants prohibiting their future violations of the antifraud provisions of the securities laws.

Simultaneous with the filing of the SEC's complaint, Rutner and Kuncz consented, without admitting or denying the allegations in the complaint, to pay $1,081,522.74 and $72,673.65, respectively, in disgorgement, prejudgment interest and civil penalties. Rutner and Kuncz also agreed to the entry of permanent injunctions prohibiting them from violations of the antifraud provisions of the securities laws, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, Rutner agreed to a court order banning him from serving as an officer or director of any public company for five years.

The SEC acknowledges the assistance of the American Stock Exchange in the matter.

 

http://www.sec.gov/litigation/litreleases/lr17645.htm


Modified: 08/01/2002