SEC Charges Three in North Carolina With Insider Trading
Early Cooperator Receives Lesser Penalty
The Securities and Exchange Commission today charged a former member of the board of directors at a North Carolina-based insurance company with illegally tipping inside information about an impending merger.
The SEC alleges that H. Thomas Davis, Jr., who has a home in Wilmington N.C., breached his fiduciary duty to Mercer Insurance Group and its shareholders when he shared confidential details about the company’s negotiations to be acquired by United Fire. Davis tipped his friend and business associate Mark W. Baggett with the nonpublic information, and Baggett later tipped his golfing partner Kenneth F. Wrangell. Baggett and Wrangell, who both live in Wilmington, made more than $83,000 in illicit profits when they traded on that confidential information illegally.
When contacted by SEC investigators about his suspicious trading, Wrangell promptly offered significant cooperation. He provided truthful details acknowledging his own trading and entered into a cooperation agreement that resulted in direct evidence being quickly developed against Baggett and Davis. This cooperation enabled the SEC to swiftly reach settlements with all three individuals to recover ill-gotten monetary gains.
“By making the choice to cooperate with the SEC and voluntarily provide all of the necessary evidence at the outset of the investigation, Wrangell saved the SEC time and resources and himself a larger penalty,” said William P. Hicks, Associate Director in the SEC’s Atlanta Regional Office.
The SEC’s complaints against Davis and Wrangell were filed in U.S. District Court for the Eastern District of North Carolina, and the complaint against Baggett was filed in U.S. District Court for the Northern District of Georgia. According to the complaints, Davis was privy to Mercer’s negotiations in the latter part of 2010 to be acquired by United Fire. In October and November, Davis tipped Baggett with nonpublic information about the impending merger, enabling Baggett to stockpile 4,426 shares of Mercer as they moved toward the acquisition date. Baggett also tipped Wrangell with advance details about the merger, and Wrangell subsequently purchased 4,500 shares of Mercer stock. After the markets closed on November 30, Mercer and United Fire publicly announced their entry into the merger agreement. Shares for Mercer stock rose nearly 50 percent the next day, and Baggett and Wrangell immediately sold their holdings for illicit profits of $41,584.45 and $42,521.55 respectively.
The SEC’s complaints allege that Davis, Baggett, and Wrangell violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In settling the SEC’s charges, Davis agreed to be jointly and severally liable for disgorgement of Baggett’s insider trading profits of $41,584.45 plus prejudgment interest as well as to pay a penalty of $41,584.45. Davis also agreed to be barred from serving as an officer or director of a publicly-traded company. Baggett agreed to pay disgorgement and a penalty in amounts that will be determined by the court. Wrangell agreed to fully disgorge his ill-gotten gains of $42,521.55 plus prejudgment interest. Due to his extensive cooperation, the additional penalty that Wrangell is required to pay on top of that disgorgement amount has been reduced to $11,380.39. All three neither admit nor deny the allegations, and their settlements are subject to court approval.
The SEC’s investigation was conducted in its Atlanta Regional Office by Assistant Regional Director Aaron W. Lipson, and the litigation has been led by Senior Trial Counsel Paul Kim. The SEC thanks the Financial Industry Regulatory Authority (FINRA) for its assistance in this matter.