Securities and Exchange Commission
Litigation Release No. 18129 / May 9, 2003
Securities and Exchange Commission v. Michael R. Hendrix, Civil Action No. C-00-20655 (JW) (N.D. Cal.)
SEC Obtains Final Judgments Against Remaining Defendants in Xylogics Insider Trading Case
Last Four Defendants Ordered to Pay More Than $1 Million in Disgorgement, Interest, and Civil Penalties
The Commission recently obtained final judgments against the last four defendants in its insider trading case involving purchases of the stock of Xylogics, Inc. in September 1995. Two of the defendants - Michael R.Hendrix and Craig Larrew -consented to the all of the relief ordered, while the other two defendants - Douglas S. Sawamura and Nick S. Park - consented to some of the relief ordered and unsuccessfully contested the remainder. The Commission's complaint, originally filed in June 2000 and later amended in October 2000, charged a total of 12 defendants with insider trading and tipping before the September 6, 1995 public announcement that Bay Networks, Inc. would acquire Xylogics. The Commission has now successfully concluded the litigation against all 12 defendants, who collectively have been ordered to pay nearly $2 million in disgorgement, interest, and civil penalties.
The most recent judgments were entered against:
- Michael R. Hendrix, a mid-level manager at Bay Networks at the time of the relevant trading, and a former stockbroker, who settled the case without admitting or denying the allegations of the Commission's complaint. Hendrix consented to a final judgment, entered on April 24, 2003, that permanently enjoined him from violating the anti-fraud provisions of the Securities Exchange Act of 1934 and ordered him to pay a total of $722,100 over five years, which amount consists of $104,886 in disgorgement of his own trading profits, $56,203 in prejudgment interest on those profits, and a $561,011 civil penalty (the penalty being equal to the profits realized by those he tipped plus three times his own trading profits).
- Craig Larrew, one of Hendrix's direct tippees, who also settled the case without admitting or denying the Commission's allegations. Larrew consented to a final judgment, entered on February 19, 2003, that permanently enjoined him from violating the anti-fraud provisions of the Exchange Act and ordered him to pay $88,813, which amount consists of $36,839 in disgorgement of his trading profits, $15,135 in prejudgment interest on those profits, and a $36,839 civil penalty.
- Douglas S. Sawamura, another Hendrix tippee, who conceded the appropriateness of disgorgement with prejudgment interest, but contested the Commission's request for other remedies in a trial held before the Honorable James Ware, U.S. District Judge for the Northern District of California, on January 30, 2003. After trial, Judge Ware found Sawamura liable for insider trading and entered a judgment, dated March 19, 2003, that permanently enjoined Sawamura from violating the anti-fraud provisions of Exchange Act Section 10(b) and Rule 10b-5 and ordered him to pay $124,615 in disgorgement of trading profits, prejudgment interest in an amount yet to be specified, and a $75,000 civil penalty.
- Nick S. Park, an indirect tippee of Hendrix, who conceded liability and the appropriateness of disgorgement, but contested the Commission's request for other remedies in a trial held before Judge Ware on January 29, 2003. After trial, Judge Ware entered a judgment against Park, dated March 19, 2003, that permanently enjoined Park from violating the anti-fraud provisions of Exchange Act Section 10(b) and Rule 10b-5 and ordered him to pay $108,625 in disgorgement of trading profits, prejudgment interest in an amount yet to be specified, and a $36,000 civil penalty.
For further information about this case and the Commission's previous settlements with the other defendants, see Litigation Release Nos. 16591 (June 15, 2000), 16999 (May 14, 2001), and 17212 (October 31, 2001).