Litigation Release No. 18149 / May 20, 2003
Securities and Exchange Commission v. John Freeman, James Cooper, Benton Erskine, Anthony Seminara, Norman Lehrman, Linda Karlsen, Timothy Siemers, Norman Grossman, Lawrence Schwartz, Michael Akva, Robert Fricker, Richard Zelman, Bradley Burke, Benjamin Cooper, Chad L. Conner, Deon Benson, Gordon K. Allen, Jr., Jon Geibel, and William H. Borders II, 00 Civ. 1963 (VM) (Southern District of New York)
SEC Settles Claims Involving Insider Trading and Bars Two Brokers from the Industry
The Securities and Exchange Commission ("Commission") today announced that the Honorable Victor Marrero of the United States District Court for the Southern District of New York entered Final Judgments of permanent injunction and other relief against defendants Chad L. Conner ("Conner") and Gordon K. Allen, Jr. ("Allen") of Bowling Green, Kentucky on February 10, 2003 and February 13, 2003, respectively. These judgments settle the Commission's claims against these two defendants in a civil action filed by the Commission on March 14, 2000, alleging that from 1997 through January 2000, these defendants and others engaged in a widespread insider trading scheme that produced over $8 million in illegal profits from trading in the securities of twenty-three public companies.
The Commission's Complaint alleges that John Freeman, a temporary word-processing employee at Goldman Sachs & Co., Inc. and later Credit Suisse First Boston, tipped a number of defendants about merger and acquisition transactions involving clients of those investment banking firms. The Complaint alleges that Freeman gave non-public information on the pending deals to James Cooper in an Internet chat room. Cooper tipped several persons, including his broker, Conner. Conner traded in advance of one transaction and realized profits of $2,752. Conner also provided tips to several persons who traded and realized profits of $3,581,573 collectively. One of the persons tipped by Conner was his client, Allen. Allen purchased securities in advance of sixteen transactions and realized profits of $895,713. Allen also provided tips to several persons who traded and realized profits of $262,975 collectively. During the relevant period, Conner and Allen were registered representatives of different broker-dealers. Conner was also associated with an investment adviser.
Without admitting or denying the allegations in the Complaint, the defendants consented to the entry of Final Judgments that permanently enjoin them from future violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder, which are antifraud provisions. Conner was ordered to pay disgorgement in the amount of $3,584,325 with prejudgment interest in the amount of $894,808, but payment of the full amount was waived based upon his sworn Statement of Financial Condition, and a civil penalty was not imposed for the same reason. Allen was ordered to pay disgorgement in the amount of $1,158,688 with prejudgment interest in the amount of $386,850, but payment of all but $32,169 of disgorgement and prejudgment interest was waived based upon his sworn Statement of Financial Condition, and a civil penalty was not imposed for the same reason.
Conner and Allen were both found guilty after a criminal trial that was prosecuted by the United States Attorney's Office for the Southern District of New York. Conner was sentenced on October 18, 2002 to fifty months incarceration, three years supervised probation, and an $8,400 special assessment. Allen was sentenced on October 18, 2002 to forty months incarceration, three years supervised probation, and a $3,800 special assessment. Based on the final judgments and criminal convictions, on May 19, 2003, the Commission issued administrative orders barring Conner from association with any broker, dealer, or investment adviser, and barring Allen from association with any broker or dealer.
See also: L.R. 16469 (March 14, 2000); L.R. 17267 (December 12, 2001); L.R. 17501 (May 2, 2002); and L.R. 17912 (January 2, 2003).