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JOSE SANCHEZ, Cal. Bar No. 161362
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission ("Commission") alleges as follows: JURISDICTION AND VENUE 1. This Court has jurisdiction over this action pursuant to Section 21(d)(1), 21(e), 21A(a)(1) and 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d)(1), 78u(e), 78u-1(a)(1) and 78aa. 2. Venue is proper in this district pursuant to Section 27 of the Exchange Act, 15 U.S.C. § 78aa, because certain of the transactions, acts, practices and courses of conduct constituting violations of the laws alleged herein occurred within the Southern District of California and because certain of the defendants reside therein. 3. Defendants Michael C. Dickman ("Dickman") and Thomas T. Johnson ("Johnson") (collectively, the "defendants"), directly or indirectly, made use of the means or instrumentalities of interstate commerce, of the mails, and/or the facilities of a national securities exchange, in connection with the transactions, acts, practices and courses of business alleged in this Complaint. SUMMARY 4. This matter involves insider trading in the securities of Tech Data Corporation ("Tech Data") by defendants Johnson, a national account manager in Tech Data's sales department during 1999, and Dickman, Johnson's friend and then-housemate. The trading occurred before and in anticipation of Tech Data's announcement on May 20, 1999 (the "public announcement") that it had entered into a significant business agreement with GE Capital IT Solutions ("GE Capital"). Specifically, Tech Data announced that it had won a three-year, $6 billion contract to assemble and distribute computers for GE Capital (the "Tech Data-GE Capital transaction"). 5. Before the May 20, 1999 public announcement, Johnson obtained material, nonpublic information regarding the Tech Data-GE Capital transaction and public announcement by virtue of his employment at Tech Data. Johnson owed a fiduciary duty or similar duty of trust and confidence to Tech Data and its shareholders to maintain the confidentiality of this material, nonpublic information. In breach of that duty, however, Johnson obtained and tipped Dickman with the material, nonpublic information concerning the Tech Data-GE Capital transaction and public announcement. In addition, Johnson and Dickman agreed, before the May 20, 1999 public announcement, that Dickman would purchase Tech Data stock through his own brokerage account and share any profits with Johnson. 6. On May 19, 1999, Dickman purchased approximately $675,000 in Tech Data stock using inside information that Johnson had obtained from Tech Data. Following the May 20, 1999 public announcement, Dickman sold the stockand realized an illegal profit of $105,693. Dickman then paid Johnson $24,421 pursuant to their preexisting plan to share profits from Dickman's illegal Tech Data trades. 7. The defendants, by engaging in the conduct described in this Complaint, have violated the securities antifraud provisions of 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. THE DEFENDANTS 8. Michael C. Dickman ("Dickman"), age 42, is currently incarcerated at the Federal Correctional Institution in Phoenix, Arizona. Dickman and Johnson lived together as housemates from November 1998 through December 1999 in San Diego, California. 9. Thomas T. Johnson ("Johnson"), age 37, resides in San Diego, California. Tech Data employed Johnson from March 2, 1992, through March 1, 2000. Johnson worked as a national account manager in Tech Data's sales department during 1999. Johnson serviced Tech Data's clients in the western United States. RELATED ENTITIES 10. Tech Data Corporation ("Tech Data") is a Florida corporation. Tech Data is a wholesale distributor of computer products headquartered in Clearwater, Florida. Tech Data's stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and is quoted on Nasdaq's National Market System. Tech Data options are traded on the Pacific Exchange. 11. GE Capital IT Solutions ("GE Capital") is a wholly-owned subsidiary of GE Capital Services, Inc. ("GE Capital Services") headquartered in Newport, Kentucky. GE Capital is a provider of information technology products and services, including services that provide customers with control and management of their information systems. GE Capital Services is a Delaware corporation whosestock is registered with the Commission pursuant to Sections 12(b) and 12(g) of the Exchange Act and is quoted on the New York Stock Exchange. THE TECH DATA-GE CAPITAL TRANSACTION
12. On or about April 1999, senior executives from Tech Data and GE Capital began negotiating the terms of the Tech Data-GE Capital transaction. Over the course of the next seven weeks, from April 1999 through May 20, 1999 (the date the Tech Data-GE Capital transaction was publicly announced), Tech Data and GE Capital representatives: (i) discussed revisions to a letter of intent, (ii) drafted the language regarding inventory buy-backs and purchases, (iii) participated in conference calls, (iv) held meetings between negotiation teams, (v) signed a letter of intent, (vi) negotiated pricing and contractual terms, and (vii) signed a contract. The Tech Data-GE Capital transaction was finalized, signed, and announced publicly on May 20, 1999. 13. On May 20, 1999, prior to the opening of trading, Tech Data issued a press release announcing the three-year contract with GE Capital. The market's reaction to Tech Data's announcement was very positive. On the day of the announcement, Tech Data's stock closed at $39.3750, a 14% increase from the previous day, with 3,826,000 shares traded, an increase of over 400% from the previous day. On May 19, 1999, the day before the announcement of the Tech Data-GE Capital transaction, Tech Data stock closed at $34.4375, on trading volume of 762,100 shares. JOHNSON OBTAINS INFORMATION ABOUT THE TECH DATA-GE CAPITAL TRANSACTION AND PUBLIC ANNOUNCEMENT 14. Johnson was aware of the Tech Data-GE Capital transaction and public announcement by virtue of his employment at Tech Data. Sometime in the weeks before the May 20, 1999 public announcement, Johnson learned at work that Tech Data had won a three-year, $6 billion contract to assemble and distributecomputers for GE Capital and that Tech Data would publicly announce this contract on or about May 20, 1999. 15. Johnson knew, or was reckless in not knowing, that the information regarding the Tech Data-GE Capital transaction and public announcement was nonpublic and that he owed a fiduciary duty or similar duty of trust and confidence to Tech Data and its shareholders not to use this information for any improper purpose or to convey it to any person without Tech Data's consent. TECH DATA'S INSIDER TRADING AND CONFIDENTIALITY POLICY 16. Tech Data promulgated a written policy prohibiting insider trading, that, among other things, required directors, officers, and employees of the company to "strictly adhere to the federal securities laws regarding the buying and selling of Tech Data Corporation stock and other securities" (the "Tech Data policy"). Among other things, this written policy prohibited all insiders from trading in any Tech Data securities while in possession of material, nonpublic information. This written policy also prohibited insiders from sharing material, nonpublic information with non-employees. The Tech Data policy was in effect when Johnson obtained information about the Tech Data-GE Capital transaction and public announcement. 17. Johnson knew, or was reckless in not knowing, about Tech Data's policy when he tipped Dickman with the material, nonpublic information about the Tech Data-GE Capital transaction and public announcement. Tech Data gave Johnson a copy of Tech Data's policy when he was first employed at Tech Data. Tech Data's policy was also contained in its employee manual. Thus, Johnson knew or was reckless in not knowing, that he was prohibited from disclosing or using for any improper purpose material, nonpublic information he gained through his employment at Tech Data. * * JOHNSON TIPS DICKMAN 18. Johnson and Dickman lived together in Johnson's home in Cardiff-by-the-Sea, California, from November 1998 through December 1999. Dickman and Johnson talked about Tech Data almost every day while they lived together. During that period, Dickman knew that Johnson worked at Tech Data as a national account manager in Tech Data's sales department during 1999. Dickman also knew that Johnson had access to material, nonpublic information concerning Tech Data. 19. Johnson disclosed material, nonpublic information to Dickman about the Tech Data-GE Capital transaction and public announcement before the May 20, 1999 public announcement. Johnson first informed Dickman of the possibility of a significant agreement between Tech Data and GE Capital at least ten days before the public announcement of the agreement. At that time, Johnson told Dickman that the agreement between Tech Data and GE Capital was "pretty much a lock." Johnson also told Dickman that the level and type of activity at Tech Data's corporate office was consistent with the imminent release of a major public announcement. 20. Before the May 20, 1999 public announcement, Dickman and Johnson also discussed that Dickman would purchase shares in Tech Data through his own brokerage account and that Dickman would share his profit from the Tech Data trades with Johnson. Dickman agreed to share profits with Johnson, because Johnson was providing him with material, nonpublic information regarding the Tech Data-GE Capital transaction and public announcement. 21. Johnson knew, or was reckless in not knowing, that the information he possessed concerning the Tech Data-GE Capital transaction and public announcement was confidential and that disclosing such information to Dickman was a breach of his fiduciary duty or similar duty of trust and confidence that he owed to Tech Data and its shareholders. Johnson did not obtain Tech Data'sconsent to disclose or use for any purpose the material nonpublic information concerning the Tech Data-GE Capital transaction and public announcement. 22. Johnson breached his fiduciary duty or similar duty of trust and confidence to Tech Data and its shareholders by improperly disclosing, directly or indirectly, to Dickman material, nonpublic information about the Tech Data-GE Capital transaction and public announcement. Johnson knew, or was reckless in not knowing, that Dickman, upon receiving this material nonpublic information, was likely to effect or cause others to effect illegal transactions in Tech Data's securities. 23. Dickman in turn knew, or was reckless in not knowing, that the information concerning the Tech Data-GE Capital transaction and public announcement was material, nonpublic information and that disclosure or use of that information was a breach of Johnson's fiduciary duty or similar duty of trust and confidence that Johnson owed to Tech Data and its shareholders. 24. Dickman knew, or was reckless in not knowing, that he owed a fiduciary duty or a similar duty of trust and confidence to Tech Data and its shareholders and that he breached that duty by using for any improper purpose the material, nonpublic information he received from Johnson concerning the Tech Data-GE Capital transaction and public announcement. 25. Dickman and Johnson each knew, or each were reckless in not knowing, that there was no business reason for Johnson to disclose to Dickman the subject or timing of the May 20, 1999 public announcement. 26. Dickman and Johnson each knew, or each were reckless in not knowing, that the share price of Tech Data would likely increase when the Tech Data-GE Capital transaction was announced publicly. * * * DICKMAN BUYS TECH DATA STOCK AND OPTIONS USING MATERIAL NONPUBLIC INFORMATION 27. Dickman used the inside information about the Tech Data-GE Capital transaction by instructing his broker in writing to purchase large quantities of Tech Data stock and options while in possession of such information. Specifically, on May 16, 1999, four days before the May 20, 1999 announcement of the Tech Data-GE Capital transaction, Dickman instructed his broker by facsimile to purchase large quantities of Tech Data stock and options on May 19 and May 20, 1999: On Wednesday 5/19 I want to purchase 20,000 shares TECD (Tech Data Corporation) at Market price when the market opens. When the stock reaches $3.00 per share over my purchase price I want you to begin selling. In any case I want to be out of the 20,000 shares by the market close. On Thursday 5/20 I want you to purchase 10,000 shares of the same stock at market price when the market opens. When the stock reaches $2.00 per share over my purchase price begin to sell. Close out the stock by market close. In addition, I want you to buy 100 contracts of call options of TECD June 30 strike date. (Emphases in original.) 28. On the same facsimile sent to Dickman's broker on May 16, 1999, Dickman recommended that his broker should purchase Tech Data stock. Dickman wrote: "BTW [by the way], you should move on this stock. Trust me or call me from home and I'll fill you in." 29. On May 19, 1999, pursuant to Dickman's instructions, Dickman's broker purchased 20,000 shares of Tech Data stock for Dickman's account at $33.6719 per share. 30. Dickman also sent his broker another facsimile on May 19, 1999, with additional instructions. Believing that the news of the Tech Data-GE Capital transaction might not be made public until May 20, 1999, Dickman instructed his broker not to liquidate his position on May 19 as previously instructed, but rather to hold his Tech Data stock until the next day. Based on the material, nonpublic information Dickman received from Johnson concerning the Tech Data-GE Capital transaction and public announcement, Dickman believed that the price of the Tech Data stock would rise significantly by the next morning. Dickman wrote in afacsimile dated May 19, 1999: If there is no huge movement of TECD of at least $2.00 up from our purchase price by 3:30 EST today, I want to hold our position overnight. My orders for Thursday 5/20/99 remain unchanged. The move, I suspect, will occur by 10am PST Thursday. I will advise when to begin moving out of our position on Thursday. (Emphasis in original.) 31. On May 20, 1999, after the public announcement but pursuant to Dickman's earlier instructions, Dickman's broker purchased an additional 10,000 shares of Tech Data at $38.375 per share for Dickman's account. 32. On May 20, 1999, Dickman's broker also purchased 100 Tech Data option contracts (June 30 call options) at between $9 and $9.625 per share. The cost to purchase those option contracts was $95,976.56. A call option is a contractual right to purchase stock at a predetermined price before a preset deadline. In this instance, the Tech Data options that Dickman planned to purchase would become worthless unless the stock price increased before the expiration date. Because Dickman had no experience in options trading, his plan was highly speculative but for the fact that Johnson and Dickman had material, nonpublic information concerning the Tech Data-GE Capital transaction and public announcement. 33. Dickman used material, nonpublic information obtained from Johnson concerning the Tech Data-GE Capital transaction and public announcement to trade illegally in Tech Data's securities. Dickman knew, or was reckless in not knowing, that by using the material, nonpublic information concerning the Tech Data-GE Capital transaction and public announcement to effect trades in Tech Data stock he was violating his fiduciary duty or similar duty of trust and confidence owed to Tech Data and its shareholders. * * * * 34. At the time that Dickman gave his instructions to his broker, Dickman had limited prior securities trading experience and had never purchased any options in any company. Before his May 1999 Tech Data trades, Dickman also had never traded Tech Data stock. 35. At the time that Dickman's trades were executed, Dickman did not have any money in his brokerage account. Dickman executed his trades hoping to use the proceeds from the sale of the stock to cover the cost of the purchase of the stock and thereby get a "free ride." Dickman's broker, however, would not allow Dickman to "free ride," but allowed him to execute the purchases of Tech Data stock and options with the understanding that Dickman would have to pay for the trades before the trades settled. Accordingly, Dickman sent his broker a check for $100,000, purportedly to pay for the trades. Dickman's check, however, was drawn on an account that had been closed. 36. At the time that Dickman gave his instructions to his broker, Dickman also did not have an options account. In order to execute the options trades in Tech Data, Dickman had to open an options trading account, which he did on May 17, 1999, just three days before the public announcement. DICKMAN SELLS TECH DATA STOCK AND SHARES HIS ILLEGAL PROFITS WITH JOHNSON 37. On May 21, 1999, after the May 20, 1999 public announcement, Dickman sold 20,000 shares of Tech Data at $39.0781 per share. Dickman realized a net profit of $105,693 in a three-day period from his trades in Tech Data stock. 38. In accordance with the defendants' preexisting agreement, Dickman shared his illegal profits with Johnson. On June 1, 1999, Dickman purchased a cashier's check in the name of Thomas Johnson in the amount of $24,421.56. Dickman gave Johnson the check, and Johnson deposited the check into his savings account that same day. * FRAUD IN CONNECTION WITH THE
Violations of Section 10(b) of the
39. Paragraphs 1 through 38 are realleged and incorporated herein by reference. 40. The defendants, by engaging in the conduct described above in paragraphs 1 through 38, directly or indirectly, in connection with the purchase or sale of securities, by the use of means or instrumentalities of interstate commerce, or of the mails, or of a facility of a national securities exchange, with scienter: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon other persons; in violation of 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. 41. By reason of the foregoing, each of the defendants violated, and unless enjoined will continue to violate, 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 WHEREFORE, the Commission respectfully requests that the Court: I. Issue findings of fact and conclusions of law that defendants Dickman and Johnson committed the violations alleged and charged herein; II. Permanently enjoin each individual defendant from violating, directly or indirectly, 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; III. Enter an order that each individual defendant disgorge all profits gained directly or indirectly from their illegal conduct, together with prejudgment interest thereon; IV. Enter an order directing each individual defendant to pay civil penalties under Section 21A(a)(1) of the Exchange Act, 15 U.S.C. § 78u-1(a)(1) ; V. Retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that may be entered, or to entertain any suitable application or motion for additional relief within the jurisdiction of this Court; and VI. Grant such other and further relief as this Court may determine to be just and necessary.
http://www.sec.gov/litigation/complaints/complr17347.htm
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