SEC Sues Sixteen Individuals for Insider Trading In Advance Of a Tender Offer
On September 30, the Securities and Exchange Commission filed two complaints in the U.S. District Court for the Western District of Pennsylvania against a total of sixteen individuals for insider trading in advance of Dick's Sporting Goods Inc.'s June 21, 2004, announcement that it intended to acquire Galyan's Trading Company, Inc. via a tender offer. The complaints allege that Joseph J. Queri, Jr., Dicks' Senior Vice President of Real Estate, tipped his close friend, Gary Gosson, and his father, Joseph Queri, Sr., about the acquisition.
Gosson, located in Syracuse, New York, tipped his friends defendants Gary L. Camp, Michael A. Santaro, Joseph A. Federico, Philip J. Simao, Mark J. Costello, and Alan J. Johnston, who all bought shares of Galyans stock. Johnston, in turn, tipped family members and friends, who also bought shares. Gosson gave Camp money to buy shares of Galyans stock through Camp's brokerage account. Santaro and Federico shared profits with Gosson.
Queri Sr., located in Las Vegas, Nevada, tipped his friends James L. Jerome, Kyle D. Kaczowski, Gino M. Ferraro, Felix A. Crisafulli, and Thomas M. Heller, who all bought shares of Galyans stock. Jerome, in turn, tipped defendant Brandt A. England, who also bought shares. Kaczowski tipped two friends who traded. Ferraro tipped his son-in-law, defendant Franko J. Marretti III, who traded and tipped a business colleague.
The day after the announcement, Galyan's stock closed at $16.68, a 50.3% increase from the previous day's closing price of $11.10. The complaints further allege that the traders collectively profited over $620,000 after selling their Galyans stock.
Five of the defendants have agreed to settle with the SEC. Without admitting or denying the allegations in the complaint, Queri Sr., Santaro, Ferraro, Crisafulli and Heller consented to the entry of a Final Judgment, subject to the court's approval, in which they are permanently enjoined 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. In addition to permanent injunctive relief, Queri Sr. agreed to pay disgorgement of $2,600.00, plus prejudgment interest of $728.59, jointly and severally with Ferraro, and a civil penalty, for tipping, in the amount of $105,647. Ferraro agreed to pay disgorgement of $13,092.00, plus prejudgment interest of $3,668.66, of which $3,328.59 is to be paid jointly and severally with Queri Sr., and a civil penalty, for trading and tipping, in the amount of $22,644.00. Crisafulli agreed to pay disgorgement of $13,327.00, plus prejudgment interest of $3,734.52, and a one-time civil penalty, for trading, in the amount of $13,327.00. Heller agreed to pay disgorgement of $7,639.00, plus prejudgment interest of $2,140.61, and a one-time civil penalty, for trading, in the amount of $7,639.00. Finally, Santaro agree to pay disgorgement of $18,782.00, plus prejudgment interest of $5,263.15, and a civil penalty, for trading, in the amount of $18,782.00. [SEC v. Joseph J. Queri Jr., Gary M. Gosson, et al., Civil Action No. 2:08-cv-01361-AJS and SEC v. Joseph J. Queri Jr., Joseph J. Queri Sr., et al., Civil Action No. 2:08-cv-01367-AJS]
The Commission acknowledges the assistance and cooperation of the Financial Industry Regulatory Authority. (LR-20765)
In the Matter of Michael J. Park and Park Capital Management Group
Today, the Commission announced the filing of a civil injunctive action against Michael J. Park ("Park"), individually, and doing business as Park Capital Management Group ("PCMG"), of Brentwood, TN. The Commission's complaint, filed on September 30, 2008 in the United States District Court for the Middle District of Tennessee, alleges that from 2001 to June 2008, Park engaged in securities fraud by convincing investors to transfer money to Park to manage through PCMG by representing to them that they would earn substantial returns on their PCMG accounts through investments in publicly traded securities and/or in investment pools that Park managed. According to the complaint, once the investors transferred funds to PCMG, Park misappropriated the funds to subsidize his lifestyle and to finance a mortgage business that he owned and controlled. The Commission's complaint further alleges that to induce investors to open accounts with him, Park told investors that he and PCMG generated high annualized returns. For example, according to the complaint, one investor invested $1.2 million over a three-month period after Park told him that PCMG's managed accounts had annual returns of 28%. The complaint alleges that Park further represented to the investor that he would receive annualized returns of 36% if he kept his investment with PCMG for 18 months. Similarly, the complaint alleges that Park told another investor that he would receive annualized returns of at least 20% to 25% by investing in an investment pool.
According to the Commission's complaint, to further his fraudulent conduct, Park provided fraudulent stock purchase confirmations and/or quarterly account statements to investors on PCMG letterhead showing that various stocks had been purchased for their accounts. These confirmations and quarterly statements also falsely showed investors that their investments had grown significantly, in one instance by as much as 25% in one quarter.
The complaint alleges that Park admitted his fraud to investors in a letter, dated June 30, 2008, in which he told investors that their accounts with "Park Capital Management Group had no current liquid value" and that he was "unable to return the value of their investments." The complaint further alleges that Park also admitted that 15 to 18 of the PCMG accounts were not "legitimate.
The Commission's complaint seeks permanent injunctions against Park from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, the complaint seeks disgorgement of Park's ill-gotten gains plus prejudgment interest thereon and civil penalties.
The Commission acknowledges the assistance and cooperation of the U. S. Attorney's Office for the Middle District of Tennessee and the Nashville Field Office of Federal Bureau of Investigation.
Securities and Exchange Commission v. Michael Jinyong Park, Individually, and Doing Business as Park Capital Management Group, Civil Action File No. 3:08-CV-00962 (M.D.TN) (LR-20766)
Initial Decision Issued In the Matter of the Nasdaq Stock Market, LLC
An Administrative Law Judge has issued an Initial Decision in Nasdaq Stock Market, LLC, Admin Proc. No. 3-12384. As a result of this decision, the new entrant fee previously calculated by the Consolidated Tape Association (CTA) for the Nasdaq Stock Market, LLC has been set aside. The CTA has been directed to recalculate the fee in accordance with the Initial Decision. (358)
INVESTMENT COMPANY ACT RELEASES
HLHZ Investments II, L.L.C. And Houlihan, Lokey, Howard & Zukin, Inc.
A notice has been issued giving interested persons until October 27, 2008 to request a hearing on an application filed by HLHZ Investments II, L.L.C. and Houlihan, Lokey, Howard & Zukin, Inc. (HLHZ) for an order to exempt certain limited liability companies and other investment vehicles established primarily for the benefit of eligible employees of HLHZ and its affiliates from certain provisions of the Investment Company Act of 1940 (Act). Each limited liability company or other investment vehicle will be an "employees' securities company" within the meaning of Section 2(a)(13) of the Act. (Rel. IC-28428 - September 30)
Aberdeen Asset Management Inc. and Aberdeen Funds
A notice has been issued giving interested persons until October 27, 2008 to request a hearing on an application filed by Aberdeen Asset Management Inc. and Aberdeen Funds under Section 12(d)(1)(J) of the Investment Company Act of 1940 (Act) for an exemption from Sections 12(d)(1)(A) and (B) of the Act, and under Sections 6(c) and 17(b) of the Act for an exemption from Section 17(a) of the Act. The order would permit certain series of registered open-end management investment companies to acquire shares of other registered open-end management investment companies and unit investment trusts that are within or outside the same group of investment companies. (Rel. IC-28429 - September 30)
Eaton Vance Floating-Rate Income Trust, et al.
A notice has been issued giving interested persons until October 22, 2008 to request a hearing on an application filed by Eaton Vance Floating-Rate Income Trust, et al. (Funds) for an order under sections 6(c) of the Investment Company Act of 1940 (Act) granting an exemption from sections 18(a)(1)(A) and (B) of the Act for a two-year period immediately following the date of the order. The order would permit each Fund to issue debt securities subject to asset coverage of 200% that would be used to refinance all of the Fund's issued and outstanding auction preferred shares. The order also would permit each Fund to declare dividends or any other distributions on, or purchase, capital stock during the term of the order, provided that any class of senior securities representing indebtedness has asset coverage of at least 200% after deducting the amount of such transaction. (Rel. IC-28431 - October 2)
Immediate Effectiveness of Proposed Rule Change
The Fixed Income Clearing Corporation filed a proposed rule change (File No. SR-FICC-2008-04), which became effective upon filing, under Section 19(b)(1) of the Exchange Act to amend the rules of the Government Securities Division to expand the types of securities eligible for the GCF Repo service. Publication is expected in the Federal Register during the week of October 6. (Rel. 34-58696)
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