Securities and Exchange Commission
Litigation Release No. 17902 / December 18, 2002
Court Enters Final Judgment Against Former Central Maine Power Employee for Insider Trading and Orders Disgorgement of Profits
Securities and Exchange Commission v. David M. Brooks, (United States District Court for the District of Maine, C.A. No. 01-26-B-S )
The Securities and Exchange Commission today announced that on December 2, 2002, the United States District Court for the District of Maine entered a final judgment against David M. Brooks of Winthrop, Maine, permanently enjoining him from securities law violations and ordering disgorgement of his trading profits from alleged insider trading. The judgment was entered with the consent of the defendant, who neither admitted nor denied the allegations of the Commission's complaint. The court's action concludes the Commission's lawsuit against Brooks for illegal insider trading in the common stock of CMP Group, Inc. based on information he received about an upcoming merger while employed by CMP.
The Commission's complaint alleged that Brooks, then a financial analyst for Central Maine Power Company, a subsidiary of CMP, invested more than $80,000 in the CMP stock fund through his 401(k) plan on June 14, 1999, the day before CMP publicly announced its plan to merge with Energy East Corporation. According to the complaint, on the day before his purchase Brooks received a highly unusual call at home from his supervisor requesting him to come into the office immediately to provide certain financial information to Central Maine's Coordinator of Financial Communications. When he arrived at the office that Sunday, Brooks allegedly noted a number of senior executives there and discussed with his supervisor his view that CMP must be planning to make a public announcement. The following day, Brooks discussed the financial information he had gathered with Central Maine's Corporate Treasurer. Immediately afterward, the complaint alleges, he ordered the move of his assets to the CMP stock fund. According to the complaint, Brooks' transfer of funds was an abrupt reversal of an investment order he had made late on Friday. Before his Sunday visit to the office, Brooks had ordered that all his 401(k) assets be transferred to a money market fund so that none would be in the CMP stock fund. After his discussions on Sunday and Monday, Brooks canceled that order and instead transferred half his assets into the CMP stock fund. The following day, June 15, Energy East and CMP publicly announced that their companies had signed a merger agreement and the price of CMP stock rose approximately 28%. Brooks allegedly made a profit of $21,117 through his illegal insider trading.
The Court's final order in this case permanently enjoins Brooks from violations of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, provisions of the federal securities laws which prohibit fraudulent conduct. In addition, the order requires Brooks to disgorge $21,117, representing his total profits from his CMP trading, plus prejudgment interest of $5,270. Based on Brooks' sworn financial statements, all but $10,852 of the total amount was waived.
This is the final settlement in two insider trading actions brought against Central Maine employees arising from CMP's merger with Energy East. See SEC v. Robert K. Gasper and James D. Fairfield, Litigation Release No. 16972/April 23, 2001.