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Paul R. Berger
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission ("SEC") alleges: 1. This insider trading case arises from the sale of common stock of the First National Bank of Keystone ("Keystone Bank") by Lorene Ellen Turpin ("Turpin"), a Keystone Vice-President, and Lora K. McKinney ("McKinney"), Keystone's proof machine operator, at the same time that they each possessed material, nonpublic information concerning the adverse financial condition of, and improper activities conducted at, Keystone Bank. By selling their Keystone Bank stock, Turpin and McKinney each fraudulently avoided losses of over $230,000. 2. The SEC seeks, with respect to each Turpin and McKinney, an injunction against future violations, full disgorgement of Turpin and McKinney's avoided losses and pre-judgment interest, and civil monetary penalties pursuant to Sections 20(b) and 20(d)(1) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77t(b) and 77t(d)(1)] and Sections 21(d)(1), 21(e) and 21A of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u(d)(1), (e) and 78u-1]. JURISDICTION AND VENUE 3. This Court has jurisdiction pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)] and Sections 21(d)(1), 21(e), 21A and 27 of the Exchange Act [15 U.S.C. §§ 78u(d)(1) and (e), 78u-1 and 78aa]. Defendants directly or indirectly used the means or instrumentalities of interstate commerce or the mails, or the facilities of a national securities exchange, in connection with their illegal conduct. 4. Venue is proper because defendants placed their orders for the securities transactions at issue in this judicial district. DEFENDANTS 5. Defendant Lorene Ellen Turpin, age 40, began working at Keystone Bank in 1988 as a switchboard operator. Approximately three years later, she was promoted to the bank's bookkeeping department. In December 1992, Turpin became head bookkeeper at Keystone Bank. In March of 1999, she became a Keystone Bank Vice President, a position she maintained until the bank collapsed in September 1999. In May 2001, Turpin pled guilty to aiding and abetting the obstruction of federal bank examiners during an inspection of Keystone Bank by the Office of the Comptroller of the Currency ("OCC"). 6. Defendant Lora K. McKinney, age 41, began working at Keystone Bank in 1985 as a switchboard operator. In 1989, McKinney became a proof machine operator in Keystone Bank's bookkeeping department. As the proof machine operator, McKinney sorted and encoded records of all of the transactions entered into by the bank. She also photographed the records, recorded them on the proof machine's proof tape, and downloaded them onto a disk for use in Keystone Bank's computers. McKinney held the position of proof machine operator until the bank collapsed in September 1999. In May 2001, McKinney pled guilty to aiding and abetting the obstruction of federal bank examiners during an inspection of Keystone Bank by the OCC. OTHER RELEVANT ENTITY 7. Keystone Bank, located in Keystone, West Virginia, was a nationally chartered, commercial bank, the deposits of which were insured by the Federal Deposit Insurance Corporation ("FDIC"). Keystone Bank operated two branch offices in West Virginia. Its stock was listed on the NASD's Over the Counter Bulletin Board. Pursuant to Section 12(i) of the Exchange Act, the OCC was responsible for administering and enforcing Keystone Bank's Exchange Act registration and reporting obligations. 8. On September 1, 1999, the OCC declared Keystone Bank to be insolvent, and appointed the FDIC as receiver for the bank pursuant to Title 12 United States Code Section 1821(c). The insolvency determination followed the OCC's discovery that the assets of Keystone Bank had been overstated by as much as $515 million. CLAIMS FOR RELIEF (Violations of Securities Act Section 17(a) and
9. Plaintiff SEC repeats and realleges Paragraphs 1 through 8 above. 10. Beginning in at least late 1998, defendants Turpin and McKinney and other Keystone Bank employees engaged in various acts intended to conceal the true financial condition of Keystone Bank from its Board of Directors, its shareholders, and the public. Turpin and McKinney Knew That Keystone
11. By 1998, Turpin and McKinney each knew that Keystone Bank took in brokered deposits to pay maturing certificates of deposits that the bank had previously issued to its customers. Brokered deposits are deposits of money obtained by Keystone Bank through a broker, for which Keystone Bank pays the broker a fee. Turpin and McKinney also knew that by 1998 brokered deposits had become an important source of funds for Keystone Bank because other avenues of funding, such as loans from other banks, were no longer available. 12. By letter dated June 29, 1998, the OCC notified Keystone Bank's Board of Directors that based on the bank's March 31, 1998 balance sheet and resulting capital ratios, it was deemed to be undercapitalized. The letter explained that pursuant to Title 12 United States Code Section 1831o, Keystone Bank was prohibited from accepting, renewing, or rolling over brokered deposits. In November 1998, Keystone Bank acknowledged that it was prohibited from accepting brokered deposits. 13. Contrary to the directive from the OCC, Keystone Bank accepted the following brokered deposits in 1999:
14. By April 1999, Turpin and McKinney each knew that Keystone Bank had accepted some or all of these brokered deposits in violation of the directive from the OCC. They further knew that Keystone Bank needed the brokered deposits to repay maturing certificates of deposit and survive financially. Finally, Turpin believed that if the OCC discovered that Keystone Bank had accepted the brokered deposits, it would assess a large fine and possibly close the bank. Turpin and McKinney Knew That The Books And
15. By at least 1997, Turpin and McKinney believed that Keystone senior executive vice-president, Terry Church, was stealing money from Keystone Bank and falsifying records to hide the transactions. Turpin also believed that Church had altered Keystone Bank's reports containing month-end and quarter-end financial information before giving them to bank examiners and to the bank's auditors. Turpin Sold Her Keystone Bank Stock While In Possession Of
16. By June 1999, Turpin had decided to sell her Keystone Bank stock. Based on the adverse material nonpublic information that she had about Keystone Bank, Turpin knew that Keystone Bank was at risk of collapsing or being fined or closed by regulators. On June 18, 1999, defendant Turpin directed United National Bank to transfer 1,050 Keystone Bank shares to E. E. Powell & Company, Inc., a securities brokerage firm, for the purpose of offering her Keystone Bank shares for sale to the general public. 17. On July 8, 1999, pursuant to Turpin's instructions, 650 Keystone Bank shares were sold at a price of $220.00 per share for a total of $143,000. 18. On July 14, 1999, pursuant to Turpin's instructions, 400 Keystone Bank shares were sold at a price of $220.00 per share for a total of $88,000. In all, Turpin avoided losses of $231,000. Turpin Tried To Sell Additional Keystone Bank Stock 19. On July 15, 1999, Turpin transferred 1,000 of her remaining 1,022 Keystone Bank shares to E.E. Powell & Company for sale to the general public, but she was unable to find a buyer for the stock. McKinney Sold Her Keystone Bank Stock While In Possession Of
20. By June 1999, McKinney had decided to sell her Keystone Bank stock. Based on the adverse material nonpublic information that she had about Keystone Bank, McKinney knew that the bank was at risk of collapsing if it did not accept brokered deposits in violation of the OCC's restriction. On June 18, 1999, defendant McKinney directed United National Bank to transfer 1,050 Keystone Bank shares to E. E. Powell & Company, Inc., for the purpose of offering her Keystone Bank shares for sale to the general public. 21. On July 8, 1999, pursuant to McKinney's instructions, 650 Keystone Bank shares were sold at a price of $220.00 per share for a total of $143,000. 22. On July 14, 1999, pursuant to McKinney's instructions, 400 Keystone Bank shares were sold at a price of $220.00 per share for a total of $88,000. In all, McKinney avoided losses of $231,000. McKinney Tried To Sell Additional Keystone Bank Stock 23. On July 15, 1999, McKinney transferred 1,500 of her remaining 2,900 Keystone Bank shares to E.E. Powell & Company for sale to the general public, but she was unable to find a buyer for the stock. Turpin and McKinney Violated Their Fiduciary Duties 24. As Keystone Bank employees, Turpin and McKinney owed fiduciary duties to Keystone Bank and its shareholders. As a result, Turpin and McKinney had a duty not to trade while in possession of the material nonpublic information they obtained concerning the adverse financial condition of Keystone Bank and to safeguard the confidentiality of that information and not misuse it. 25. In breach of these duties, and for their personal benefit, Turpin and McKinney fraudulently offered for sale and sold Keystone Bank stock. 26. By reason of the foregoing, defendants Turpin and McKinney, directly and indirectly, violated Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)] and Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. PRAYER FOR RELIEF Plaintiff Securities and Exchange Commission requests judgment: (i) permanently enjoining defendants Lorene Ellen Turpin and Lora K. McKinney from violating Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)] and Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]; (ii) ordering defendants Lorene Ellen Turpin and Lora K. McKinney to disgorge all avoided losses realized from the unlawful trading described above, together with prejudgment interest; (iii) ordering defendants Lorene Ellen Turpin and Lora K. McKinney to pay civil monetary penalties pursuant to Section 20(d)(1) of the Securities Act [15 U.S.C. § 77t(d)(1)] and Section 21A of the Exchange Act [15 U.S.C. § 78u-1]; and (iv) granting such other relief as the Court may deem just and appropriate. Dated: ___________, 2002
http://www.sec.gov/litigation/complaints/comp17786.htm
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