Securities and Exchange Commission
Litigation Release No. 18133 / May 12, 2003
Securities and Exchange Commission v. Raymond S. Evans, (03 Civ. 2367) (SPATT)(E.D.N.Y.)
The Securities and Exchange Commission announced today that it filed a civil injunctive action in federal court in Brooklyn, charging Raymond S. Evans ("Evans"), a New York attorney, with engaging in illegal insider trading. In its complaint, the Commission alleges that Evans purchased Periphonics Corporation ("Periphonics") stock from June 1999 through July 1999 while in possession of material non-public information concerning the acquisition of Periphonics by Nortel Networks Corporation ("Nortel"), and Evans sold Hirsch International Corporation ("Hirsch") stock in September 1997 while in possession of material non-public information concerning negative projections of Hirsch's estimated quarterly earnings. Evans, without admitting or denying the allegations in the complaint, consented to a judgment that permanently enjoins him from future violations of the antifraud provisions of the federal securities laws, orders him to disgorge his gains from the illegal trades and imposes a civil penalty that is equal to two times the amount of Evans' trading profits in Periphonics stock.
Evans, age 66, was a partner in the law firm of Ruskin, Moscou, Evans & Faltischek, P.C., n/k/a Ruskin, Moscou, Faltischek, P.C. (the "Law Firm") at the time the violations occurred, and resigned from the Law Firm on June 1, 2002. Periphonics and Hirsch were clients of the Law Firm.
The complaint alleges the following. Between June and August 1999, the Law Firm represented Periphonics in confidential negotiations that led to the merger of Periphonics and Nortel. Evans participated in numerous meetings concerning the merger negotiations. As an attorney, Evans had a fiduciary duty to keep confidential the information he learned from clients in the course of the Law Firm's representation. In addition, Evans had a fiduciary duty to refrain from using confidential information obtained from a client for his own advantage or benefit without the client's consent. Between June 18 and July 1, 1999, in breach of the duties he owed to Periphonics and its shareholders, Evans purchased 19,800 shares of Periphonics stock on the basis of material non-public information concerning the merger. On August 24, 1999, Periphonics and Nortel announced the merger between the two companies and the price of Periphonics stock rose approximately 10% to close at $27.75 per share. As a result of his unlawful purchases of Periphonics stock, Evans made at least $221,762.50 in illicit profits.
During 1997, the Law Firm was outside legal counsel for Hirsch. From August 1997 through September 8, 1997, Evans participated in confidential meetings and discussions with Hirsch officers and employees about Hirsch's financial condition, including its estimated earnings for the third quarter of its 1998 fiscal year (the "Estimated 1998 Earnings"), which were expected to be well below analysts' projections. On September 2 and September 3, 1997, in breach of his fiduciary duties, Evans sold his 6,125 shares of Hirsch stock in advance of the public announcement of the Estimated 1998 Earnings based on the material non-public information Evans acquired. Additionally, prior to September 4, 1997, Evans tipped a family member who owned Hirsch stock with the material non-public information he had obtained concerning the Estimated 1998 Earnings. On September 4, 1997, the Tippee sold 6,000 shares of Hirsch stock based on the material non-public information he acquired from Evans. On September 8, 1997, Hirsch issued a press release announcing that its estimated earnings for the third quarter of its 1998 fiscal year would be $.08 to $.10 below analysts' projections. On September 9, 1997, the price of Hirsch stock decreased approximately 20% to close at $17.875 per share. As a result of their unlawful sales of Hirsch stock, Evans avoided losses of $40,562.50 and the Tippee avoided losses of $40,375.00.
Simultaneously with the filing of the complaint, Evans consented to the entry of a final judgment: (1) permanently enjoining him from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder; (2) ordering him to disgorge $302,700 in illegal profits and to pay prejudgment interest of $107,174.93; and (3) ordering him to pay a civil penalty of $443,525, which represents two times the amount of his illegal profits in Periphonics stock.