U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18977 / November 17, 2004
SEC v. Kevin Hobbs et al., (United States District Court for the District of New Hampshire, Civil Action No. 04-425-JM , filed November 16, 2004)
SEC Charges Two New Hampshire Residents with Insider Trading
The Commission announced that on November 16, 2004, it filed a civil fraud action against Kevin J. Hobbs of Mont Vernon, New Hampshire, and Bruce C. Mayhew of Manchester, New Hampshire, alleging that they engaged in illegal insider trading in the securities of Granite State Bankshares, Inc., formerly a publicly-traded New Hampshire bank. The Commission's complaint alleges that Hobbs, then an administrative vice president and director of internal audit for Granite State, obtained material, nonpublic information in late October and early November 2002 concerning the upcoming acquisition of Granite State by Chittenden Corp., a bank holding company based in Vermont. According to the complaint, Hobbs tipped Mayhew, his friend and partner in an investment club, and both Hobbs and Mayhew thereafter bought shares of Granite State prior to the public announcement of the acquisition. On November 7, 2002, Granite State and Chittenden announced the acquisition, causing Granite State's stock price to rise by over $7 per share. The defendants' illegal insider trading netted profits totaling approximately $146,000.
The Commission's complaint alleges that, as a result of his position as an insider at Granite State, beginning in late October 2002, Hobbs learned certain confidential information about the acquisition of the company. Among other things, at least two Granite State employees who reported to Hobbs discussed with him unusual document requests they had received from Granite State executives that suggested due diligence was being performed on Granite State or that an acquisition involving Granite State was going to happen. The complaint further alleges that Hobbs participated in discussions with other Granite State employees during this time period about the likelihood of an acquisition involving Granite State and heard numerous rumors among Granite State employees that an acquisition was taking place. According to the complaint, the information that Hobbs obtained was material, nonpublic information available only to insiders at Granite State, and the information confirmed for Hobbs that Granite State was engaged in acquisition-related activity. The complaint alleges that Hobbs tipped Mayhew, and that Hobbs purchased 10,030 shares of Granite State and Mayhew purchased 4,700 shares of Granite State while they were in possession of inside information.
The complaint alleges that Hobbs breached a duty to Granite State by purchasing shares of Granite State while in possession of material, nonpublic information and by tipping Mayhew, and that Mayhew knew that Hobbs worked at Granite State and knew, or was reckless in not knowing, that Hobbs was providing confidential information to him in breach of Hobbs' duty to Granite State. In its complaint, the Commission charged Hobbs and Mayhew with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission's complaint seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties.
The Commission acknowledges the assistance of the NASD Regulation, Inc., in connection with this investigation.