SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. Litigation Release No.16049 / February 1, 1999 SECURITIES AND EXCHANGE COMMISSION v. CHARLES L. BRUMFIELD et al., United States District Court for the Southern District of New York, 95 Civ. 9283 (JES) The Commission has obtained liability findings and a settlement against three of the last four remaining defendants in its civil enforcement proceedings against twenty people who allegedly traded securities while in possession of material, nonpublic information concerning AT&T’s plans to acquire four companies between 1988 and 1991. The Commission alleged that the defendants obtained the information, directly or indirectly, from Charles Brumfield, a former vice-president in AT&T’s labor relations department. Shortly before trial, on January 6, 1999, the United States District Court for the Southern District of New York approved a settlement reached by the Commission with defendant Warren F.X. Smith, Sr. On January 11, 1999, the first day of trial, defendant Robert Allen stipulated to civil liability for insider trading under Sections 10(b) and Rule 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3. After a two-and- a-half week trial, on January 26, 1999, a jury rendered a verdict finding that defendant Sharon Seiden engaged in insider trading in violation of Section 14(e) of the Exchange Act and Rule 14e-3. The jury verdict also found Seiden and defendant John Lynch not liable for insider trading under Section 10(b) of the Exchange Act and Rule 10b-5. The specific allegations against these defendants are as follows: Warren F.X. Smith, Sr. The Commission alleges that Smith received inside information on two AT&T takeover targets: Digital Microwave Corporation and Teradata Corporation. According to the complaint, Charles Brumfield passed the information to Thomas Alger, a close friend of Brumfield’s who also worked in AT&T’s labor relations department, and Alger in turn tipped, among others, Robert Flanagan, an old friend. In the case of Digital Microwave, the Commission alleges that in March 1991 Robert Flanagan tipped his attorney, defendant John Lynch, who then relayed the information to his friend Smith. In Teradata, the Commission alleges that in November 1991 Smith received the tip directly from Robert Flanagan. Smith and members of his family traded in both Digital Microwave and Teradata securities and made illegal profits of more than $134,000. In his settlement, Smith neither admitted nor denied the Commission’s allegations and consented to the entry of a judgment permanently enjoining him from violating Section 10(b) of the Securities Exchange Act and Rule 10b-5. The settlement further requires Smith to pay disgorgement of $134,158 plus prejudgment interest. As a result of Smith’s demonstrated inability to pay, payment of these amounts was waived and no civil penalty was imposed. Smith, 65, is an attorney residing in Pompano Beach, Florida. Robert Allen. Allen was tipped directly by Charles Brumfield concerning AT&T’s secret plans to acquire NCR Corporation in November 1990 and Teradata Corporation in November 1991. Allen and members of his immediate family made more than $300,000 in insider trading profits, and kicked back approximately $42,000 of those profits to Brumfield. Allen pled guilty to a felony charge of conspiracy to commit insider trading in August 1995, and stipulated to civil liability on January 11, 1999. He is 62 years old and resides in Punta Gorda, Florida. (Defendant Allen is not related to the former AT&T chairman of the same name.) Sharon Seiden. Seiden received material, nonpublic information concerning AT&T’s planned tender offer for NCR from her live-in boyfriend Robert Flanagan. (Flanagan was tipped by Thomas Alger, who received the information from Charles Brumfield.) Seiden bought approximately $16,000 worth of NCR call option contracts, and sold them after a takeover was publicly announced on December 2, 1990. She made illegal profits of over $350,000 in about two weeks. As noted above, on January 26, 1999, a jury found that Seiden violated Section 14(e) of the Securities Exchange Act and Rule 14e-3, which prohibit insider trading in connection with tender offers. The jury also found Seiden not liable for insider trading under Section 10(b) of the Securities Exchange Act and Rule 10b-5 because it concluded that the SEC had not established that Seiden knew or recklessly disregarded that the material, nonpublic information she received had been obtained in breach of a duty to AT&T. Seiden, 57, currently resides in Boonville, New York. At the time of her insider trading, she lived in Roslyn, New York. John Lynch. Lynch was Robert Flanagan’s attorney. The Commission alleged that Flanagan tipped Lynch in March and April 1991 concerning AT&T’s plan to acquire Digital Microwave and AT&T’s abandonment of that plan a short time later. The Commission further alleged that Lynch passed the information to his friend Warren Smith, who traded in Digital Microwave stock on behalf of himself, Robert Flanagan, Lynch, and others. Lynch did not make any trading profits. In its verdict, the jury found that the Commission did not prove that Lynch received material, nonpublic information from Robert Flanagan. Lynch, 72, lives in Manhattan. * * * * * The only issues left in the case relate to the relief to be awarded against defendants Allen and Seiden. The Court will determine these issues in further proceedings. The Commission seeks a permanent injunction, disgorgement of unlawful profits, prejudgment interest, and a civil penalty against both of them. The Commission has obtained settlements, judgments, or liability findings against nineteen out of the twenty people it accused of participating in Charles Brumfield’s insider trading scheme. See SEC Litigation Release Nos. 14706 (Oct. 31, 1995); 14779 (Jan. 11, 1996); (Jun. 20, 1996); 15180 (Dec. 9, 1996); 15221 (Jan. 21, 1997); 15227 (Jan. 28, 1997); 15285 (Mar. 12, 1997); 15426 (July 29, 1997); 15559 (Nov. 13, 1997); 15648 (Feb. 20, 1998); 15816 (Jul. 20, 1998). In addition, eight participants in the scheme were convicted of criminal charges brought by the United States Attorney’s Office for the Southern District of New York.