UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 38436 / March 25, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9280 ______________________________ : In the Matter of : ORDER INSTITUTING PROCEEDINGS : PURSUANT TO SECTIONS 15(b)(6) MICHAEL P. SWEENEY, : AND 21C OF THE SECURITIES : EXCHANGE ACT OF 1934, MAKING Respondent. : FINDINGS AND IMPOSING REMEDIAL : SANCTIONS ______________________________: I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be instituted against Michael P. Sweeney pursuant to Sections 15(b)(6) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"). In anticipation of the institution of these administrative proceedings, Sweeney has submitted an Offer of Settlement, which the Commission has determined accept. Solely for purposes of these proceedings and any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, Sweeney, by his Offer of Settlement, without admitting or denying the findings set forth herein, consents to the issuance of this Order Instituting Proceedings Pursuant to Sections 15(b)(6) and 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions ("Order"). II. Accordingly, IT IS HEREBY ORDERED that proceedings pursuant to Sections 15(b)(6) and 21C of the Exchange Act be, and hereby are, instituted. ==========================================START OF PAGE 2====== III. The Commission makes the following findings: -[1]- A. SUMMARY From at least 1989 through 1991, Sweeney aided and abetted a group of individuals who engaged in an insider trading scheme involving the securities of three companies American Telephone and Telegraph ("AT&T") planned to acquire. Sweeney substantially assisted the group by providing advice concerning how to conceal the illegal trading from detection by federal regulatory authorities. He also facilitated the illegal trading by passing material, nonpublic information and trading instructions between persons involved in the scheme. B. RESPONDENT From October 1983 through March 1993, Michael P. Sweeney, 50, was employed as a registered representative at Merrill Lynch, Pierce, Fenner & Smith, Inc., a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. Merrill Lynch ("the brokerage firm") terminated Sweeney's employment after he refused to cooperate in an internal investigation being conducted by that firm. C. OTHER RELEVANT PERSONS 1. Charles Brumfield, during the relevant period, was employed as a Labor Relations Vice President in AT&T's Human Resources Department. On February 2, 1995, Brumfield pleaded guilty to (i) one count of conspiracy to commit securities fraud, wire fraud, and obstruction of agency proceedings, and (ii) one count of perjury. On October 22, 1996, Brumfield was sentenced to four years probation, six months in a community treatment center, and fined $6,000. 2. Thomas Alger, during the relevant period, was Brumfield's friend and his subordinate in the Human Resources Department at AT&T. On January 27, 1995, Alger pleaded guilty to one count of conspiracy to commit securities fraud, wire fraud, and obstruction of agency proceedings. He was sentenced on August 9, 1996, to ---------FOOTNOTES---------- -[1]- The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. ==========================================START OF PAGE 3====== three years probation, 300 hours of community service, and fined $1,000. 3. Robert Flanagan was a close personal friend of Alger. On September 22, 1995, a jury convicted Flanagan on one count of conspiracy to commit securities fraud, wire fraud, and obstruction of agency proceedings, and two counts of securities fraud. On August 2, 1996, Flanagan was sentenced to twenty-four months in prison, three years supervised release, and fined $5,000. D. BACKGROUND TO THE TRADING SCHEME As a registered representative with the brokerage firm, Sweeney was an "associated person" as defined in Section 3(a)(18) of the Exchange Act. During the course of his employment with that firm, Sweeney was advised and reminded that trading on inside information was a crime and that a broker was prohibited from accepting orders from persons who were engaged in this illegal activity. During the 1970's, Sweeney met Alger through their mutual friend, Robert Flanagan. During the relevant period, Sweeney also served as Alger's stockbroker at the brokerage firm. Sweeney knew that Alger worked for AT&T. In addition, Sweeney handled the brokerage account of Flanagan's brother, Thomas Flanagan. As AT&T employees, Brumfield and Alger were under a duty to maintain the confidentiality of corporate, nonpublic information. From at least 1989 through 1991, Brumfield and Alger obtained highly confidential and material information about several of AT&T's proposed acquisitions. In breach of their duty of confidentiality to AT&T, Alger and Brumfield consulted with Sweeney about this information. E. SWEENEY'S ASSISTANCE TO THE TRADING SCHEME In general, Sweeney advised Brumfield and Alger on how to use the information to trade in the securities of the acquisition targets. Among other things, Sweeney counseled them to trade through the brokerage accounts of other persons in an effort to avoid detection. He also advised them on the availability of options and the amounts of securities to purchase so that the illegal trading would not draw the attention of regulators. In addition to providing advice, from time to time Sweeney facilitated the trading through the accounts of others by passing the material, nonpublic information and trading instructions from Alger to Robert Flanagan. He also processed options transactions in one of the securities for Thomas Flanagan. ==========================================START OF PAGE 4====== 1. SWEENEY'S ROLE IN CONNECTION WITH INSIDER TRADING IN SECURITIES OF NCR CORPORATION During 1989, Sweeney had cautioned Alger that he should not trade in his own account if he had confidential information obtained through his or others' employment at AT&T. Sweeney advised Alger that he should conceal his trading by trading through accounts of persons unaffiliated with AT&T. In October 1990, AT&T's Board of Directors decided to pursue an acquisition of NCR Corporation ("NCR"). A plan to acquire NCR was approved by the AT&T Board on November 14, 1990. On December 2, 1990, AT&T publicly announced that it was making a friendly stock-for-stock tender offer for NCR. In November 1990, during the course of his employment, Brumfield learned of AT&T's planned acquisition of NCR. On or about November 15, 1990, Brumfield gave Alger the information concerning the plan to acquire NCR and directed Alger to purchase NCR call option contracts for him through the accounts of others. Alger subsequently enlisted the assistance of others to buy NCR call option contracts for Brumfield. To fund Alger's purchases through the accounts of others, Sweeney assisted Alger by arranging a $22,000 loan from Alger's brokerage account. Sweeney wire transferred this amount to Alger's bank account so that he would have necessary funds to finance some of his trades in the securities of NCR Corporation. Alger also used Sweeney to convey the material, nonpublic information about the proposed NCR acquisition to Robert Flanagan. Shortly thereafter, Thomas Flanagan, Robert Flanagan's brother, purchased a total of thirty call option contracts in his account with Sweeney. 2. SWEENEY'S ROLE IN CONNECTION WITH INSIDER TRADING IN SECURITIES OF DIGITAL MICROWAVE CORPORATION On March 20, 1991, the AT&T Board of Directors approved an acquisition of Digital Microwave Corporation ("Digital") conditioned upon the acquisition price of Digital stock being at or below a certain price. Primarily because of an increase in the price of Digital's stock, AT&T contacted Digital late in the afternoon on Friday, March 29, 1991, and informed Digital that AT&T was no longer interested in pursuing a business combination. Most members of AT&T's Digital project team working on the acquisition did not receive notification of the project's termination until Monday afternoon, April 1. On or about March 20, 1991, in the course of his employment, Brumfield obtained material, nonpublic information about the proposed, imminent acquisition of Digital by AT&T. That day, ==========================================START OF PAGE 5====== Brumfield conveyed the information to Alger and asked him to obtain additional information about Digital and its securities. Following Brumfield's instructions, Alger contacted Sweeney to learn more about the company and its securities. Sweeney provided public information about the company and its stock price. He also informed Alger that call option contracts were not available for Digital. When Alger reported back to Brumfield with this information, Brumfield asked Alger to arrange for the purchase of shares of Digital common stock on his behalf. Alger contacted Sweeney and others and told each about the nonpublic information he had received from Brumfield concerning AT&T's interest in Digital. Sweeney assisted Alger by relaying this information to Flanagan, who purchased Digital stock through other persons' accounts for Brumfield. Approximately ten days later, around April 1, 1991, Brumfield told Alger that the acquisition of Digital would not occur, and that they should liquidate their positions. Alger, in turn, called Sweeney to relay to Flanagan that he should sell any Digital shares that were purchased. Flanagan had the Digital shares sold. 3. SWEENEY'S ROLE IN CONNECTION WITH INSIDER TRADING IN THE SECURITIES OF TERADATA CORPORATION After AT&T's December 2, 1990 public announcement of its intent to acquire NCR, Teradata Corporation ("Teradata") and NCR engaged in a number of discussions concerning the status of a preexisting joint development agreement. On September 18, 1991, Teradata advised NCR that in view of the impending AT&T/NCR merger it wanted to renegotiate certain terms of the agreement and outlined its proposed changes. Following receipt of Teradata's proposals, NCR examined the impact of those proposals and ultimately determined to pursue an acquisition of Teradata. On November 26, 1991, AT&T's corporate development committee gave NCR permission to pursue its acquisition of Teradata. On December 2, 1991, NCR and Teradata publicly announced that they had agreed to merge. Around November 18, 1991, Sweeney contacted Alger to have him ask Brumfield whether he knew anything about recent news that Teradata was extending a joint development agreement with NCR. Alger contacted Brumfield about Teradata pursuant to Sweeney's request. On November 26, 1991, Brumfield learned at work that NCR was going to acquire Teradata over the coming weekend. Brumfield and Alger together called Sweeney to inquire about the price of Teradata common stock, its trading volume and the trading volume of any options. Sweeney advised them that Teradata was a very ==========================================START OF PAGE 6====== thinly traded stock. He counseled them that they should trade lightly; otherwise, an investigation by the Securities and Exchange Commission might be initiated. After the call, Brumfield asked Alger to buy him short-term, out-of-the-money Teradata call option contracts. Alger instructed Sweeney not to tell Flanagan about NCR's proposed takeover of Teradata because Alger wanted to stress to Flanagan in person that they needed to heed Sweeney's advice to trade lightly to avoid detection. Sweeney, however, acting on instructions from Alger, did help arrange Flanagan's trading by informing Flanagan to contact Alger directly if he wanted to learn about a possible takeover. On the evening of November 26, Flanagan called Alger, who arranged a meeting for the next evening to discuss an AT&T acquisition. In the meeting on November 27, Alger disclosed to Flanagan that Teradata was the acquisition target. He also stressed to him the importance of trading lightly to avoid detection. Alger then asked Flanagan to buy Brumfield short- term, out-of-the-money Teradata calls, which Flanagan agreed to do. Beginning November 26, Alger also told other individuals that he had learned from his boss at AT&T that NCR was going to acquire Teradata over the coming weekend. Alger then asked each person to buy Teradata call options for him through their respective accounts. Using Sweeney's advice, Alger instructed these individuals that they should trade lightly. The three began buying Teradata securities the following day, November 27, 1991. 4. SWEENEY'S ROLE IN CONNECTION WITH THE COVERUP After the Commission subpoenaed Brumfield to testify in its investigation into trading in the securities of Teradata, Brumfield asked Sweeney to help him develop false explanations-- or a cover story--for his investment in Digital. Sweeney conducted research on Digital, which he provided to Alger to relay to Brumfield. Brumfield later destroyed the materials because they clearly reflected research done after the actual trading. F. LEGAL DISCUSSION 1. BRUMFIELD AND ALGER VIOLATED SECTIONS 10(b) AND 14(e) AND RULES 10b-5 AND 14e-3 Brumfield and Alger breached their duty of confidentiality to AT&T by giving other persons the material, nonpublic information concerning AT&T's plans to make a tender offer for the common stock of NCR, to acquire Digital and Teradata, and to ==========================================START OF PAGE 7====== abandon its plans to acquire Digital, under circumstances where they knew, reasonably expected, or recklessly disregarded the fact that those persons would trade in the securities of those companies. Brumfield and Alger's tippees then traded in these securities for themselves and/or on behalf of Brumfield and Alger. As a result, in each instance Alger and Brumfield violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. On or before November 8, 1990, AT&T had taken a substantial step to commence a tender offer for the common stock of NCR. Brumfield and Alger communicated material, nonpublic information relating to AT&T's tender offer for the stock of NCR to Flanagan and others under circumstances in which it was reasonably foreseeable that such communications were likely to result in trading by these persons. Flanagan caused the purchase of securities of NCR while in possession of material information relating to the tender offer and while knowing or having reason to know that the information was nonpublic and had been acquired directly or indirectly from an employee at AT&T. As a result, Brumfield, Alger and Flanagan violated Section 14(e) of the Exchange Act and Rule 14e-3 thereunder. 2. SWEENEY AIDED, ABETTED AND CAUSED VIOLATIONS OF SECTIONS 10(b) AND 14(e) AND RULES 10b-5 AND 14e-3 In order to establish liability for aiding and abetting, the Commission must establish (1) the existence of the primary violation, (2) that the aider or abettor had a general awareness that his role was part of an overall activity that was improper, and (3) that the aider or abettor knowingly and substantially assisted the principal violation. Dominick & Dominick, Inc., 50 SEC 571, 577 (1991). Sweeney knew, or was reckless in not knowing, that Brumfield and Alger were engaged in unlawful insider trading as described above. Sweeney substantially assisted Brumfield, Alger and their tippees in trading on the material, nonpublic information. Sweeney counseled Alger to trade through accounts of other people to avoid detection. He advised Alger and Brumfield to trade lightly in Teradata to avoid an investigation by the Commission. Sweeney, at Alger's request, passed material, nonpublic information and trading instructions to one of Alger's tippees. Sweeney assisted Alger in obtaining a loan, the proceeds of which Alger used to finance trading by his tippees. As a result, Sweeney willfully aided and abetted and caused their violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Further, Sweeney willfully aided, abetted and caused Brumfield's, Alger's and Flanagan's violations of Section 14(e) of the Exchange Act and Rule 14e-3 thereunder. Sweeney knew, or was reckless in not knowing, that Brumfield and Alger were ==========================================START OF PAGE 8====== communicating the material, nonpublic information concerning AT&T's tender offer for the stock of NCR to others under circumstances in which it was reasonably foreseeable that such communications were likely to result in trading by these persons. Sweeney substantially assisted them by conveying the information to Flanagan and by advising them on how to avoid detection by regulators. IV. FINDINGS Based on the foregoing, the Commission finds that Sweeney willfully aided, abetted, and caused violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder. V. ORDER In view of the foregoing, it is in the public interest to impose the sanctions specified in the Offer of Settlement. Accordingly, IT IS HEREBY ORDERED THAT: A. Sweeney, pursuant to Section 21C of the Exchange Act, cease and desist from committing or causing any violation, and any future violation, of Sections 10(b) and 14(e) of the Exchange Act, and Rules 10b-5 and 14e- 3 thereunder; B. Sweeney be, and hereby is, barred from association with any broker, dealer, investment adviser, investment company or municipal securities dealer; and C. Sweeney, pursuant to Section 21B of the Exchange Act, shall pay a civil money penalty in the amount of $25,000 to the United States Treasury. Such payment shall be: (1) made by United States postal money order, certified check, bank's cashier's check or bank money order; (2) made payable to the Securities and Exchange Commission; (3) hand-delivered, within five days of the issuance of this Order, to the Office of the Secretary, Securities and Exchange Commission, 450 5th Street, N.W., Room 6183, Washington, D.C. 20549; and (4) submitted under cover letter that identifies Michael P. Sweeney as a Respondent in these proceedings and the file number of these proceedings, a copy of ==========================================START OF PAGE 9====== which cover letter and money order or check shall be sent to Colleen P. Mahoney, Deputy ==========================================START OF PAGE 10====== Director, Division of Enforcement, Securities and Exchange Commission, 450 5th Street, N.W., Mail Stop 4- 1, Washington, D.C. 20549. By the Commission. ________________________________ Jonathan G. Katz Secretary