U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18794 / July 26, 2004
Securities and Exchange Commission v. David M. Willey and Joy S. Willey, Civil Action No. 1:04-CV-01243, (D.D.C., filed July 26, 2004).
SEC Files Insider Trading Case Against Former Capital One CFO David M. Willey
The Securities and Exchange Commission today filed a complaint in the United States District Court for the District of Columbia alleging David M. Willey of Great Falls, Virginia, former Chief Financial Officer of Capital One Financial Corporation, engaged in insider trading in the securities of Capital One. According to the complaint, the examiner in charge of the Federal Reserve Board of Governors' examination of Capital One advised Willey that the Fed was likely to downgrade Capital One's supervisory assessment, and that such a downgrade would result in some form of supervisory action. Without informing other members of senior management or the Capital One Board of Directors of this material information, Willey engaged in a series of transactions in Capital One stock in May 2002 and obtained profits in stock and cash through his fraudulent trading valued at several million dollars.
More specifically, the Commission's complaint alleges that on April 18, 2002, Willey met one-on-one with the examiner in charge of the Fed's then ongoing review of Capital One. During their one-on-one meeting, the examiner told Willey that the Fed was likely to downgrade the bank's supervisory assessment and that such a downgrade was likely to result in a supervisory action, including a possible Memorandum of Understanding (MOU). Willey did not provide Capital One senior management or board of directors with this critical adverse information. Instead, on May 9 and 13, 2002, Willey exercised over 147,000 of his Capital One stock options through a series of stock swaps and cashless exercises, selling a significant number of Capital One shares on the market and earning Willey proceeds in stock and cash worth several million dollars.
Subsequently, on May 13, 2002, representatives of the Fed informed other senior management at Capital One of the likely downgrade and supervisory action. Upon learning this information, Capital One's General Counsel placed an immediate ban on all senior management from trading in Capital One securities. Willey, however, had already completed his transactions. The Fed finalized its supervisory assessment of Capital One in July 2002, determining that it would require an MOU as its supervisory action. On July 16, 2002, after the market closed, Capital One issued a press release announcing the MOU. Capital One's stock price plummeted 40% after the disclosure.
In addition, the Commission's complaint alleges that Willey filed a Form 4 disclosure statement with the Commission that failed to report two of his May 2002 options exercises totaling 46,800 shares.
The Commission is seeking a permanent injunction, disgorgement with prejudgment interest, an officer/director bar, and a civil penalty against David M. Willey for violating Sections 10(b) and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 16a-3 thereunder. The Commission's complaint also alleges that Willey's wife, Joy S. Willey, is unjustly enriched because some of the insider trading proceeds are in her possession. Accordingly, the Commission is suing her as a Relief Defendant to recover this unjust enrichment. The Commission thanks the Federal Reserve Board of Governors for its assistance in this matter.