U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19242 / June 1, 2005
SEC v. William J. Pardue, (United States District Court for the Eastern District of Pennsylvania, 02cv8048, filed October 24, 2002)
SEC WINS INSIDER TRADING LAWSUIT AGAINST FORMER EXECUTIVE OF CENTRAL SPRINKLER
The Securities and Exchange Commission announced today that on April 1, 2005, the Honorable Robert J. Kelly, United States District Judge for the Eastern District of Pennsylvania, issued an opinion, following a non-jury trial of the matter on January 18, 2005, holding William J. Pardue liable for insider trading in the securities of Central Sprinkler Corp. in violation of Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. In addition, the Court found that Pardue made approximately $140,000 by misusing confidential information that Tyco International Ltd. planned to take over Central Sprinkler of Lansdale, Pennsylvania in 1999.
The Court determined that Pardue had worked for Central Sprinkler for over 20 years, rising to become a senior officer. At the time of his trading, he was still employed by the company as a consultant. The Commission contended that Pardue learned that Tyco was planning to acquire Central Sprinkler from his in-laws the Meyer family, who were officers and directors of Central Sprinkler, and that he illegally used the information to trade for his own personal profit. The Court found that in the weeks before Tyco's public announcement of the acquisition, Pardue spent over $200,000 to accumulate 13,100 shares of Central Sprinkler stock. After the acquisition was announced, Pardue sold this stock for a profit of approximately $140,000. In holding Pardue liable for insider trading, the Court found that the Commission had presented "strong circumstantial evidence" and that Pardue's purchase of Central Sprinkler stock was "highly suspicious." The Court further found that "[w]hen Pardue's proximity to [the Meyer family] during the events in question is added, the Court is left with no other explanation of Pardue's conduct other than his possession of material, non-public information."
The Court scheduled a separate evidentiary hearing to determine appropriate relief, and on May 3, 2005, the Court entered a Final Judgment ordering Pardue to pay disgorgement of $25,000 and a civil penalty of $25,000, notwithstanding Pardue's claim that he was unable to pay any monetary judgment. In determining the disgorgement amount, the Court focused on Pardue's present financial condition, noting that "$25,000 is a sufficient amount to ensure that Pardue receives no gain from the wrong." In determining the civil penalty, the Court stated that Pardue "blatantly violated" his obligation as an officer and stockholder of Central Sprinkler "not to trade in his company's stock while aware of confidential information that would be of value in the market." Further, the Court stated that "to this day, Pardue fails to appreciate the gravity of his conduct or its wrongfulness" and, as a result, a civil penalty of $25,000 was consistent with the seriousness of his violation and was appropriate to deter future misconduct.
For further information about the Commission's action against Pardue, see Litigation Release No. 17806 (October 24, 2002).