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EDWIN H. NORDLINGER (EN-6258)
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SECURITIES AND EXCHANGE COMMISSION, Plaintiff, vs. E. GARRETT BEWKES, JR., and ROBERT D. BEWKES, Defendants. |
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2004 Civ. 04-2628(RMB) (ECF CASE) COMPLAINT |
Plaintiff Securities and Exchange Commission ("Commission") alleges the following against Defendants E. Garrett Bewkes, Jr. ("Garry Bewkes") and Robert D. Bewkes ("Robert Bewkes") (collectively, "Defendants"): SUMMARY
1. Garry Bewkes, a former director of Interstate Bakeries Corporation ("IBC"), and his son, Robert Bewkes, a former broker, engaged in insider trading in IBC common stock.
2. Specifically, on January 29, 2003, Garry Bewkes received a confidential IBC report discussing the company's deteriorating financial condition. At this time, Garry Bewkes was an IBC director and owed a duty to keep confidential any material, non-public information concerning IBC. On February 3, 2003, the day before an IBC Board of Director's meeting, Garry Bewkes telephoned his son, Robert Bewkes, and communicated negative information regarding IBC's financial condition, and advised Robert Bewkes to sell his IBC stock.
3. Immediately thereafter, Robert Bewkes sold 16,230 shares of IBC stock held in his own account and the brokerage accounts of his family, friends and other clients.
4. As a result of the timing of his sales, Robert Bewkes avoided losses of approximately $67,517 for himself, family and clients.
5. 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). In this action, the Commission is seeking: (a) permanent injunctive relief; (b) disgorgement plus prejudgment interest; (c) civil penalties pursuant to Section 20(d) of the Securities Act, 15 U.S.C. § 77t(d), and Sections 21(d) and 21A(a) of the Exchange Act, U.S.C. §§ 78u(d)(3) and 78u-1; and (d) such further relief as the Court may deem appropriate.
6. This Court has subject matter jurisdiction over this action 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. § 78aa.
7. Venue lies in this district 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, because, among other things, certain of the transactions, acts, practices, and courses of business occurred in the Southern District of New York. For instance, IBC common stock is traded on the New York Stock Exchange ("NYSE").
8. The Defendants, directly or indirectly, singly and in concert, made use of the means or instruments of transportation or 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.
9. The Defendants have 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), and 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.
10. Garry Bewkes, age 76, is a resident of Vero Beach, Florida, and Nantucket, Massachusetts. In 1981, he became Chairman and CEO of American Bakeries Corporation ("American Bakeries"), a large retail baker. In the late 1980s, American Bakeries sold most of its businesses to IBC. Garry Bewkes then served on the IBC Board of Directors until his resignation on July 2, 2003.
11. Robert Bewkes, age 48, is a resident of Darien, Connecticut. Robert Bewkes is Garry Bewkes's son. Between June 17, 1991 and June 30, 2003, he was employed as a broker.
12. IBC, a Delaware corporation with its headquarters in Kansas City, Missouri, is the nation's largest wholesale baker, operating more than 60 bakeries and 1,400 retail stores throughout the United States. IBC's common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and is traded on the NYSE.
Garry Bewkes Learned About IBC's Deteriorating Financial Condition
13. In September 2002, IBC announced estimated earnings of $1.90 per share for its fiscal year ending May 31, 2003 ("FY 2003").
14. Shortly thereafter, IBC management realized it could not possibly meet its earnings estimate. On December 17, 2002, IBC announced its poor second quarter earnings and provided new earnings guidance, reducing its estimate of earnings for FY 2003 from $1.90 per share to $1.30 per share.
15. In late January, IBC management sent its Board of Directors, including Garry Bewkes, a report detailing IBC's financial condition for the period ended January 11, 2003 ("the January 11th Report"). This report, prominently marked "Highly Confidential," detailed IBC's deteriorating financial condition, including a net loss for the period of $4.3 million.
16. Garry Bewkes received the January 11th Report on January 29, 2003.
17. The information about IBC's financial condition in the January 11th Report was material, non-public information.
18. Garry Bewkes, as a director of IBC, owed a duty to keep confidential, material, non-public information concerning IBC.
19. Between June 17, 1991 and June 30, 2003, Robert Bewkes was employed as a broker.
20. At all relevant times, Robert Bewkes knew that his father, Garry Bewkes, was a director of IBC.
21. On February 3, 2003, the day before an IBC Board meeting, Garry Bewkes telephoned Robert Bewkes and told him that IBC was not doing well and it was not going to be a pleasant meeting. Garry Bewkes also said that IBC's business was "lousy," and advised Robert Bewkes to sell any IBC stock that Robert Bewkes owned.
22. Within ten minutes of this conversation on February 3, 2003, Robert Bewkes sold 16,230 shares of IBC stock that were held in his own accounts, his family's accounts, and certain clients' accounts. Robert Bewkes sold these shares at prices ranging from $14.30 to $14.42 per share.
23. Before trading began on the NYSE on February 11, 2003, IBC announced a revised earnings estimate, reducing its estimate of earnings for FY 2003 from $1.30 per share to between $0.90 and $0.95 per share.
24. On February 11, 2003, the price of IBC stock fell from $13.64 per share to $10.22 per share.
25. By selling 16,230 shares of IBC stock on February 3, 2003, Robert Bewkes, his family and clients avoided losses of approximately $67,517.
26. The Commission realleges and incorporates by reference each and every allegation contained in Paragraphs 1 through 25 above.
27. By virtue of the conduct described above, Garry Bewkes, in the offer or sale, and in connection with the purchase or sale of securities, by the use of the means or instrumentalities of interstate commerce, or of the mails, or of any facility of any national securities exchange: (1) employed devices, schemes, or artifices to defraud; (2) obtained money or property by, or otherwise made, untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (3) engaged in acts, practices, or courses of business that operated as a fraud or deceit upon the purchasers of IBC securities.
28. As part of and in furtherance of this violative conduct, Garry Bewkes, in breach of his fiduciary duty to IBC shareholders, or other similar duties arising out of a relationship of trust and confidence, communicated material, non-public information concerning IBC to Robert Bewkes.
29. Garry Bewkes knew, or was reckless in not knowing, that he was breaching a fiduciary or other similar duty arising out of a relationship of trust and confidence by conveying material, non-public information concerning IBC to Robert Bewkes.
30. Garry Bewkes communicated the material, non-public information about IBC to Robert Bewkes in order to receive a direct or indirect personal benefit.
31. By reason of the acts and practices described above, Garry Bewkes, singly or in concert, directly or indirectly, 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.
32. The Commission realleges and incorporates by reference each and every allegation contained in Paragraphs 1 through 31 above.
33. By virtue of the conduct described above, Robert Bewkes, in the offer or sale, and in connection with the purchase or sale of securities, by the use of the means or instrumentalities of interstate commerce, or of the mails, or of any facility of any national securities exchange: (1) employed devices, schemes, or artifices to defraud; (2) obtained money or property by, or otherwise made, untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (3) engaged in acts, practices, or courses of business that operated as a fraud or deceit upon the purchasers of IBC securities.
34. As part of and in furtherance of this violative conduct, Robert Bewkes sold IBC common stock on the basis of material, non-public information concerning IBC.
35. When Robert Bewkes sold IBC stock, he knew, or was reckless in not knowing, that the information he had received from Garry Bewkes concerning IBC was material and non-public and had been communicated to him as a result of a breach of fiduciary or other similar duty arising out of a relationship of trust and confidence.
36. By reason of the acts and practices described above, Robert Bewkes, singly or in concert, directly or indirectly, 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.
WHEREFORE, the plaintiff Commission respectfully requests that this Court enter a Final Judgment:
A. Permanently enjoining Robert Bewkes and Garry Bewkes, their agents, servants, employees, and attorneys, and all persons in active concert or participation with them 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), and 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.
B. Ordering Robert Bewkes to disgorge the losses avoided as a result of the violations alleged in this Complaint.
C. Ordering Robert Bewkes and Garry Bewkes 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.
D. Granting such other relief as the Court shall deem just and proper.
Dated: April 7, 2004
New York, New York
http://www.sec.gov/litigation/complaints/comp18658.htm
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