U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18441 \ November 3, 2003
SECURITIES AND EXCHANGE COMMISSION v. JORGE EDUARDO BALLESTEROS FRANCO, et al., Civil Action No. 01 CV 3872 (JGK) (S.D.N.Y.) (filed May 8, 2001)
SEC OBTAINS INJUNCTION FOR INSIDER TRADING AGAINST JORGE E. BALLESTEROS
BALLESTEROS TO PAY OVER $2.5 MILLION IN PENALTIES
On October 31, 2003, the U.S. District Court for the Southern District of New York entered a final judgment against Jorge Eduardo Ballesteros Franco ("Jorge Ballesteros"), the former Chairman of Grupo Mexicano de Desarrollo, S.A., a major Mexican construction company, based upon charges of insider trading. The Commission's Complaint, filed on May 8, 2001, and amended on May 16, 2002, alleges that Jorge Ballesteros received a tip from his brother, the late Jose Luis Ballesteros, who was then a director of Nalco Chemical Company ("Nalco"). The Complaint alleges that Jorge Ballesteros was tipped about a possible acquisition of Nalco prior to the June 28, 1999 public announcement that Nalco would be acquired by Suez Lyonnaise des Eaux, S.A., ("Suez"). Following the tip, Jorge Ballesteros placed orders to purchase over $5.7 million in Nalco stock through Swiss accounts controlled by offshore trusts and nominee companies, resulting in illegal profits of over $2 million.
The Commission's Complaint specifically alleges that Jose Luis Ballesteros attended a June 17, 1999 Nalco board meeting at which he learned that Nalco had received a conditional takeover offer from Suez. The Complaint alleges that by June 21, 1999, Jose Luis Ballesteros tipped his brother, Jorge Ballesteros, regarding the offer from Suez. Between June 22 and June 25, 1999, Jorge Ballesteros then directed the purchase of 153,300 Nalco shares through two offshore companies, Gianni Enterprises Limited and Sagitton Limited. Those companies, in turn, were owned by two family trusts, Gianni Trust, whose settlor is Jorge Ballesteros' mother, and Cardinal Trust, whose settlor is his wife. After the June 28, 1999 public announcement, Jorge Ballesteros directed that the Nalco stock be sold, resulting in illegal profits of $2,271,108.55.
Without admitting or denying the allegations of the Commission's Complaint, Jorge Ballesteros consented to the entry of the Court's final judgment. The judgment orders him to pay a penalty of $2,573,875. This amount represents a one-time penalty on the illegal profits made in the Gianni Enterprises Limited account and a two-time penalty on the illegal profits made in the Sagitton Limited account. The Commission intends to have these funds paid into a court account pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002 for ultimate distribution to victims of the fraud. In addition, the judgment permanently enjoins Jorge Ballesteros from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934, and Rules 10b-5 and 14e-3 thereunder. All of the profits, along with prejudgment interest, were previously paid as part of a settlement with other parties announced on May 8, 2001. SEC v. Jorge Eduardo Ballesteros Franco, et al., Civil Action No. 01 CV 3872 (JGK) (S.D.N.Y.) (filed May 8, 2001); SEC Press Release No. 2001-43 (May 8, 2001). In light of this current settlement with Jorge Ballesteros, and the prior settlement with the estate of Jose Luis Ballesteros in 2001, the Commission has filed a notice voluntarily dismissing its claims against the corporate and trust vehicles through which Jorge Ballesteros traded.
All told, the Commission has now obtained over $10 million in settlements from the 20 defendants charged with insider trading in Nalco stock. In addition to the Commission's May 8, 2001 Complaint, the Commission filed two additional settled actions arising out of trading in the securities of Nalco. SEC v. Pablo Escandon Cusi and Lori Ltd., Civil Action No. 02 CV 0971 (S.D.N.Y.) (filed February 7, 2002), Litigation Release No. 17356 (February 7, 2002); and SEC v. Hugo Salvador Villa Manzo and Multinvestments, Inc., Civil Action No. 02 CV 1766 (S.D.N.Y.) (filed March 6, 2002), Litigation Release No. 17395 (March 6, 2002).
The U.S. Attorney for the Southern District of New York has obtained an indictment against Jorge Ballesteros based on the same conduct alleged in the Commission's Complaint. On February 27, 2002, the U.S. Attorney for the Southern District of New York obtained a criminal conviction against Juan Pablo Ballesteros, one of Jose Luis Ballesteros' sons. On June 4, 2002, Juan Pablo Ballesteros was sentenced to 15 months imprisonment, a $40,000 fine and two years of supervised release. Litigation Release No. 17897 (December 17, 2002).
The Commission wishes to thank the U.S. Attorney's Office for the Southern District of New York, U.S. Immigration and Customs Enforcement, the Swiss Federal Office of Justice, the New York Stock Exchange and the Isle of Jersey Financial Services Commission for their cooperation and assistance in this matter.