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Attorney for Plaintiff
IN THE UNITED STATES DISTRICT COURT
Plaintiff, Securities and Exchange Commission ("Commission") alleges the following against defendant Michael W. Foti ("Foti"): SUMMARY 1. On February 2-3, 1999, Foti engaged in insider trading in the securities of Boron LePore and Associates, Inc. ("Boron LePore"), a company that provided marketing and other services to the pharmaceutical industry. 2. Foti was an insider of Boron LePore. Specifically, Foti was a full-time consultant and a member of the company's Executive Committee, and was provided with sensitive financial information about Boron LePore. As an insider of Boron LePore, Foti owed a duty to keep confidential, and not use for personal gain, any material, nonpublic information concerning Boron LePore. 3. In October 1998, Boron LePore publicly announced that it lost its largest client. Boron LePore's stock price fell significantly, and the price rebounded after Boron LePore assured investors that the company would be able to replace the lost revenue. Boron LePore then struggled to replace the lost revenue, but during January and into February 1999, it became clear that Boron LePore was not going to meet analysts', and internal, earnings expectations for the quarter ended December 31, 1998 ("Fourth Quarter Earnings"), and the quarter ended March 31, 1999 ("First Quarter Projected Revenue"). 4. From approximately January 14 through February 2, 1999, Foti learned material, nonpublic information about: (1) Boron LePore's Fourth Quarter Earnings; and (2) Boron LePore's First Quarter Projected Revenue. 5. On February 2-3, 1999, in breach of his duty to Boron LePore, Foti sold 20,900 shares of Boron LePore stock at prices between $30.00 and $31.00 per share. 6. At 7:30 a.m. on February 4, 1999, Boron LePore issued a press release ("February 4th Press Release") stating, among other things, that: (1) its Fourth Quarter Earnings were $0.01 short of analysts' expectations; and (2) Boron LePore was uncertain about its future earnings. Following this release, the price of Boron LePore's common stock fell $13.55 per share, from $28.75 per share, its February 3rd closing price, to $17.50 per share, its February 5th closing price. As result of his insider trading, Foti avoided losses of at least $244,985. JURISDICTION AND VENUE 7. The Commission brings this action pursuant to the authority conferred upon it by Section 20(b) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77t(b), and Section 21(d) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78u(d), for permanent injunctive relief, disgorgement plus prejudgment interest thereon, and other equitable relief as the Court may order against Foti. The Commission also brings this action for civil penalties pursuant to Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and Section 21(d) of the Exchange Act, U.S.C. § 78u(d)(3). The Commission also brings this action pursuant to Section 21A(a) of the Exchange Act, 15 U.S.C. § 78u-1, for civil penalties under the Insider Trading and Securities Fraud Enforcement Act of 1998. 8. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and Sections 21(d), 21(e), and 27 of the Exchange Act, 15 U.S.C. §§ 78u(d), 78u(e), and 78aa. 9. Venue lies in this court pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), and Section 27 of the Exchange Act, 15 U.S.C. § 77aa. Certain of the acts, transactions and practices occurred in the District of New Jersey. For instance, Foti worked at Boron LePore's principle place of business, which was located in Fair Lawn, New Jersey. In addition, Foti resides in Wayne, New Jersey. 10. Foti, directly or indirectly, singly or in concert, made use of the means or instruments of transportation and communication in, and the means or instrumentalities of, interstate commerce, or of the mails, in connection with the transactions, acts, practices and courses of business alleged herein. STATUTES AND RULES ALLEGED TO HAVE BEEN VIOLATED 11. Foti has engaged, and unless enjoined will continue to engage, directly or indirectly, in transactions, acts, practices, and courses of business that constitute violations of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. DEFENDANT 12. Foti is 47 years old and resides in Wayne, New Jersey. Since August 1981, Foti has been a certified public accountant licensed in New Jersey. At all relevant times, Foti was a consultant to Boron LePore and a member of Boron LePore's Executive Committee. RELATED PARTIES 13. Boron LePore was a Delaware Corporation with its principal place of business in Fair Lawn, New Jersey. Boron LePore provided marketing and consulting services to the pharmaceutical industry. Since September 1997, when Boron LePore conducted its initial public offering ("IPO"), Boron LePore's common stock traded on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). Boron LePore's securities were registered with the Commission pursuant to Section 12(g) of the Exchange Act. On June 25, 2002, Cardinal Health, Inc., acquired Boron LePore in a tender offer. FOTI ENGAGED IN INSIDER TRADING Background 14. Foti provided accounting services to Boron LePore (and its predecessor company) for a number of years, and on August 1, 1996, Foti became Boron LePore's CFO. In June 1997, shortly before Boron LePore's IPO, Foti resigned as CFO and became a full-time consultant to Boron LePore. 15. In June 1998, Foti became a member of Boron LePore's Executive Committee. The function of this committee was to make decisions concerning Boron LePore's strategic business plans. 16. As a consultant and member of Boron LePore's Executive Committee, Foti received financial information about Boron LePore. Indeed, Foti's duties at Boron LePore required him to stay abreast of the firm's current financial condition. 17. Foti was an insider of Boron LePore, and he owed a duty to keep confidential, and not use for personal gain, material, nonpublic information concerning Boron LePore. 18. On August 8, 1998, Foti signed an acknowledgement agreeing to comply with Boron LePore's Statement of Company Policy on Insider Trading and its Policy Regarding Special Trading Procedures ("Policy Statement"). The Policy Statement outlined Boron LePore's policies regarding buying or selling Boron LePore securities while in possession of material, nonpublic information. The Policy Statement also prohibited Boron LePore's directors, officers, and certain others, including Foti, from buying or selling Boron LePore securities outside four 30-day "trading windows," which began three days after Boron LePore announced its quarterly and annual earnings. These special trading procedures also required that all trades, within the 30-day trading windows, be pre-approved by Boron LePore's Chief Operating Officer ("COO"). 19. Despite the fact that Foti signed the Policy Statement and agreed to comply with its terms, including the special trading procedures, Foti sold outside of the "trading windows," and never asked the COO's approval before he sold his Boron LePore stock, on February 2-3, 1999. In Late 1998, Boron LePore Lost Its Largest Client 20. On October 23, 1998, Boron LePore publicly announced that it lost its largest client. After Boron LePore publicly announced the loss of this client, Boron LePore's stock price dropped 37 percent, from its October 22nd closing price of $39.81, to its October 23rd opening price of $25. 21. Shortly after the announcement of the loss of its largest client, Boron LePore publicly announced that it remained confident that the lost revenue from the client would not significantly impact Boron LePore's future revenue. Thereafter, Boron LePore's stock price rebounded throughout November 1998, and traded at approximately $32 per share from late November 1998 until approximately February 3, 1999. 22. In late 1998, however, Boron LePore struggled to replace the lost revenue from its largest client. Foti Learned Material, Nonpublic Information About Boron LePore's Fourth Quarter Earnings 23. By January and early February 1999, it became clear that Boron LePore was going to have trouble hitting analysts', or internal, expectations regarding its earnings. In mid-January 1999, Boron LePore began preparing its financial statements for the Fourth Quarter 1998. On January 19, 1999, Boron LePore's accounting staff completed a preliminary report concerning the fourth quarter financial statements ("Preliminary Report"). 24. The Preliminary Report showed a Fourth Quarter earnings per share ("EPS") of $0.16 per share, compared with (i) publicly available analysts' forecasts of approximately $0.25 per share, (ii) Boron LePore's internal business plan of $0.25 per share, and (iii) Boron LePore's $0.30 per share internal forecast, which was used to motivate its employees. 25. On or about January 20, 1999, Foti and other Boron LePore executives held a brief meeting and discussed the Fourth Quarter Earnings. 26. On January 20, 1999, Boron LePore's Chief Financial Officer ("CFO") told its President that the Fourth Quarter "doesn't look as strong as it once did" and that the "revenue forecast wasn't coming in as it was forecast" for Boron LePore's largest division, BLA. As a result of his discussions with the CFO, Boron LePore's President concluded that Boron LePore would not reach its internal Fourth Quarter EPS forecast of $0.30 per share and that its actual EPS would range between $0.17 and $0.28 per share. 27. Following January 20th, Boron LePore's accounting staff continued to work on the Fourth Quarter Financial Statements over the next two weeks. 28. Prior to selling his Boron LePore stock on February 2-3, 1999, Foti learned about the Preliminary Report and Boron LePore's Fourth Quarter Earnings. 29. On February 3, 1999, Boron LePore's Board of Directors approved a Fourth Quarter EPS at $0.24 per share, $0.01 per share below analysts' public expectations. Thereafter, Boron LePore first publicly disclosed the Fourth Quarter EPS of $0.24 per share in the February 4th Press Release. 30.Prior to February 4, 1999, the negative information concerning Boron LePore's Fourth Quarter Earnings was material and nonpublic. Foti learned material, nonpublic information Boron LePore's First Quarter Earnings 31. On November 10, 1998, Boron LePore's Board of Directors approved a business plan for the year ended December 31, 1999, and the quarter ended March 31, 1999 ("First Quarter 1999"). This plan projected revenue from all divisions of Boron LePore. 32. Specifically, the business plan included a forecast for the revenue of: (i) BLA projecting yearly and quarterly revenue of $80 million and $15.64 million, respectively; and (ii) Medical Education ("Med Ed"), another division of Boron LePore, projecting yearly and quarterly revenue of $44.7 million and $8.5 million respectively. The business plan also included a forecast of earnings at $0.22 per share for the First Quarter 1999 ("First Quarter EPS"). 33. In early January 1999, Boron LePore began to assess its revenue forecasts for the current quarter. Starting in mid-January, Boron LePore's management held a series of meetings and discussions concerning the First Quarter Projected Revenue. 34. On January 14, 1999, a revised revenue forecast concerning BLA was completed, which projected total revenue of approximately $50 million for 1999, and $14.5 million for the First Quarter 1999, $30 million and $1.1 million, respectively, less than the BLA Revenue Forecast ("Revised BLA Revenue Forecast"). 35. On January 19, 1999, a revised revenue forecast concerning Med Ed was completed, which projected Med Ed to receive $6.28 million in revenue for the First Quarter 1999, which was approximately $3 million, or 28%, below the Med Ed Revenue Forecast ("Revised Med Ed Revenue Forecast"). 36. On January 27, 1999, Boron LePore held a meeting of its Executive Committee, which Foti attended. At that meeting, Foti learned that BLA and Med Ed were projecting lower revenue for the First Quarter 1999. At the conclusion of the January 27th meeting, Boron LePore's CFO projected that Boron LePore's First Quarter EPS was between $0.15 and $0.18, lower than Boron LePore's prior projections for its First Quarter EPS of $0.22 ("Revised First Quarter EPS Projection"). 37. Prior to selling his Boron LePore stock on February 2-3, 1999, Foti learned the contents of the Revised BLA Revenue Forecast and the Revised Med Ed Revenue Forecast. Prior to selling his Boron LePore stock on February 2-3, Foti also learned of negative news concerning the Revised First Quarter EPS Projection. 38. In the February 4th Press Release, Boron LePore first publicly disclosed that it was uncertain about its future earnings (including its First Quarter Projected Revenue). 39. Prior to February 4, 1999, the negative information concerning Boron LePore's First Quarter Projected Revenue was material and nonpublic. Foti Sold Boron LePore Stock In Advance of the February 4th Press Release 40. On February 2-3, 1999, Foti sold 20,900 shares of Boron LePore stock at prices between $30-$31. By selling in advance of the February 4th Press Release, Foti avoided losses of at least $244,985.92. CLAIM FOR RELIEF Foti Violated Section 17(a) of the Securities
41. The Commission repeats and realleges the allegations in paragraphs 1 through 40 above, as though fully set forth herein. 42. During the period of February 2-3, 1999, Foti, directly and indirectly, singly and in concert, knowingly or recklessly, by use of the means and instrumentalities of interstate commerce, or of the mails, in connection with the purchase or sale of Boron LePore securities:
44. As part, and in furtherance, of his violative conduct, Foti, in breach of a fiduciary duty, or other similar duty arising out of a relationship of trust and confidence with Boron LePore, sold Boron LePore common stock while using material, nonpublic information concerning Boron LePore's Fourth Quarter Earnings and its First Quarter Projected Revenue, including the Revised BLA Revenue Forecast and the Revised Med Ed Revenue Forecast. 45. Foti knew, or was reckless in not knowing, that he was breaching a fiduciary duty, or other similar duty arising out of a relationship of trust and confidence with Boron LePore, by selling Boron LePore common stock while using material, nonpublic information concerning Boron LePore's Fourth Quarter Earnings and its First Quarter Projected Revenue, including the Revised BLA Revenue Forecast and the Revised Med Ed Revenue Forecast. 46. Foti illicitly avoided losses by selling Boron LePore common stock. 47. By reason of the foregoing, Foti violated, and unless permanently enjoined, will again violate, Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, thereunder. RELIEF SOUGHT WHEREFORE plaintiff respectfully requests that this Court enter a Final Judgment: A. Permanently enjoining Foti, his agents, servants, employees, and attorneys, and all persons in active concert or participation with him who receive actual notice of the injunction by personal service or otherwise, and each of them, from future violations of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5; B. Ordering Foti to disgorge the losses he avoided as a result of the violations alleged in this Complaint plus pay prejudgment interest thereon; C. Ordering Foti to pay civil money penalties pursuant to Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and Sections 21(d) and 21A of the Exchange Act, 15 U.S.C. § 78u(d)(3) and § 78u-1; and D. Granting such other relief as the Court shall deem just and proper. Dated: August ___, 2002
Of Counsel:
http://www.sec.gov/litigation/complaints/comp17700.htm
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