IN THE UNITED STATES DISTRICT COURT
COMPLAINT FOR INJUNCTIVE RELIEF
It appears to Plaintiff, Securities and Exchange Commission ("Commission"), and it alleges, that:
1. This matter concerns insider trading in CheckFree Holdings Corporation securities by John Patrick Fitzgerald ("Fitzgerald"), CheckFree's vice president of financial planning and analysis, in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. 240.10b-5].
2. On February 2, 2000, an executive officer of CheckFree told Fitzgerald that CheckFree had agreed to merge with TransPoint, a joint venture of Microsoft Corporation, First Data Corporation, and Citibank, N.A. The executive officer asked Fitzgerald to perform certain analyses in connection with the acquisition. Between February 9, 2000, and February 15, 2000, Fitzgerald purchased a total of 5,857 shares of CheckFree stock on three separate days, including the day of the merger announcement, at an average price of $64.54 per share. The day after the merger was announced, CheckFree opened at $87.50, up $19.25 from the previous day's close, and traded between $87.03125 and $125.625 before closing at $100.25. On February 18, 2000, the third day after the merger was announced, Fitzgerald sold 5,000 shares at an average price of $82.085 per share. In a little more than one week, Fitzgerald showed a gain of $102,770.87 on an investment of $377,981.69.
3. Defendant Fitzgerald has engaged, and unless restrained and enjoined by this Court, will continue to engage in acts and practices that constitute and will constitute violations 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].
JURISDICTION AND VENUE
4. The Commission brings this action pursuant to Sections 21(d), 21(e) and 21A of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e) and 78u-1] to enjoin the defendant from engaging in the transactions, acts, practices, and courses of business alleged in this complaint, and transactions, acts, practices, and courses of business of similar purport and object, for civil penalties and for other equitable relief.
5. This Court has jurisdiction over this action pursuant to Sections 21(d), 21(e), and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa].
6. Defendant Fitzgerald, directly and indirectly, made use of the mails and the means and instrumentalities of interstate commerce in connection with the transactions, acts, practices, and courses of business alleged in this complaint that constituted violations of the Exchange Act.
7. Certain of the transactions, acts, practices, and courses of business constituting violations of the Exchange Act occurred in the Northern District of Georgia. In addition, Defendant Fitzgerald resides in the Northern District of Georgia.
8. Defendant Fitzgerald, unless restrained and enjoined by this Court, will continue to engage in the transactions, acts, practices, and courses of business alleged in this complaint, and in transactions, acts, practices, and courses of business of similar purport and object.
9. John Patrick Fitzgerald, age 38, is a resident of Atlanta, Georgia. He joined CheckFree as director of financial planning and analysis in March 1997 and became vice president of financial planning and analysis in June 1998. He held the vice president position until his resignation in September 2000. Recently, Fitzgerald served as the chief financial officer for Etour.com, which ceased operations in 2001. Fitzgerald currently works for a private company in the Atlanta area.
10. CheckFree Holdings Corporation, headquartered in Norcross, Georgia, provides electronic billing and payment services through third-party financial institutions and financial Internet sites. CheckFree's common stock is registered pursuant to Section 12(g) of the Exchange Act and is traded on the Nasdaq National Market System under the symbol "CKFR."
FITZGERALD'S INSIDER TRADING
11. In July 1999, CheckFree's management began discussions with TransPoint LLC's management regarding a merger of the two companies. TransPoint, located in Englewood, Colorado, was an electronic billing and payment joint venture owned by Microsoft Corporation, First Data Corporation, and Citibank, N.A.
12. Fitzgerald's duties as vice president of financial planning and analysis included reviewing budgets and forecasts and evaluating potential acquisition candidates for CheckFree. As part of those duties, David M. Mangum, a CheckFree executive officer, told Fitzgerald of the imminent merger with TransPoint and asked him to perform certain analyses pertaining to the merger on February 2, 2000.
13. During the two weeks prior to the date that Fitzgerald learned of the merger, CheckFree's stock traded between $57 and $87 on an average daily volume of 1,584,810 shares. From February 2, the date Fitzgerald was informed of the imminent merger, through February 15, the day of the announcement (after the market closed), CheckFree's stock traded between $62.50 and $68.25 on an average daily volume of 741,850 shares.
14. As described in the following paragraphs, during the period from February 9 through February 15, 2000, Fitzgerald, trading upon the basis of the material non-public information he had obtained concerning the upcoming Checkfree merger, purchased 5,857 shares of CheckFree, using, at least in part, proceeds from the sale of other investments.
15. On February 9, 2000, seven days after learning of the TransPoint merger transaction, Fitzgerald purchased 2,857 shares of CheckFree stock at an average price of $64.97 per share.
16. On February 10, 2000, Fitzgerald purchased 1,000 shares of CheckFree at an average price of $62.28 per share.
17. On February 15, the last trading day before the merger was announced, Fitzgerald purchased an additional 2,000 shares of CheckFree stock at an average price of $65.05 per share.
18. After the market closed on February 15, 2000, CheckFree announced that it had entered into a definitive merger agreement with TransPoint in which all outstanding ownership interests in TransPoint, held by Microsoft, First Data and Citibank, would be transferred to CheckFree in exchange for 17 million shares of CheckFree's common stock. After the merger, CheckFree controlled more than 50 percent of the market share for bill presentation and payment.
19. Based on the February 15th closing price of $68.25, the transaction was valued at approximately $1.0 billion.
20. On February 16, CheckFree's stock opened at $87.50, traded between $87.03 and $125.63, and closed up 32 points at $100.25. Approximately 16,000,200 shares were traded that day.
21. On February 18, 2000, Fitzgerald sold 5,000 CheckFree shares at an average price of $82.085 per share. Thus, in a little more than one week, Fitzgerald profited $102,770.87 on an investment of $377,981.69. This amount includes an unrealized gain of $14,033 on the 857 shares that Fitzgerald did not sell, based upon the difference between the cost of those shares purchased on February 9 at $65.6875 per share ($56,294.19) and the assumed proceeds of $70,327.56 that would have been received if the shares were sold on February 18 at the price of $82.0625 per share, the price at which most shares were sold on that date. 22. CheckFree had a policy related to insider trading during February 2000. CheckFree provided Fitzgerald with a copy of the policy on a regular basis. The policy prohibited officers and directors from trading during specific periods, such as those involving quarterly earnings releases, and it "strongly discouraged" all employees from trading during those specified periods. CheckFree's policy prohibited trading on inside information, and it specifically stated that it is a violation of Federal securities laws for any person to buy or sell securities if they are in possession of material inside information.
23. CheckFree e-mailed its policy to all employees on a quarterly basis.
24. Fitzgerald violated CheckFree's policy prohibiting trading on inside information when he began purchasing CheckFree stock after February 2, the day he became aware of the planned merger. In fact, CheckFree's policy listed examples of material information and included as one example "that an important acquisition or sale is about to occur."
25. The information about the planned CheckFree merger, upon which Fitzgerald traded, was material, non-public information.
26. Fitzgerald violated his fiduciary duty to CheckFree when he traded in CheckFree stock based upon material non-public information which he obtained from CheckFree.
Violations 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]
27. Paragraphs 1 through 26 are hereby realleged and are incorporated herein by reference.
28. Defendant Fitzgerald, from February 2, 2000 through February 18, 2000, in connection with the purchase and sale of securities, directly and indirectly, by the use of means and instrumentalities of interstate commerce and by use of the mails,
employed devices, schemes, and artifices to defraud and engaged in acts, practices, and courses of business which would and did operate as a fraud and deceit upon persons, in connection with the purchase and sale of such securities, all as more particularly described above.
29. Defendant Fitzgerald knew, or was severely reckless in not knowing, that he was trading on the basis of material non-public information obtained from his employer, was violating his fiduciary duty to his employer and was engaged in a scheme to defraud.
30. By reason of the foregoing, defendant Fitzgerald has violated, and unless restrained and 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, Plaintiff Securities and Exchange Commission respectfully prays for:
A permanent injunction enjoining Defendant Fitzgerald, and his agents, servants, employees, attorneys, and all persons in active concert or participation with him who receive actual notice of the order by personal service or otherwise, and each of them, from violating 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].
An order pursuant to Section 21A of the Exchange Act [15 U.S.C. § 78u-1] imposing civil penalties against defendant Fitzgerald.
An order requiring defendant Fitzgerald to disgorge the ill-gotten gains from his insider trading, with prejudgment interest.
Such other and further relief as this Court may deem just, equitable, and appropriate in connection with the enforcement of the federal securities laws and for the protection of investors. Further, the Securities and Exchange Commission respectfully prays that the Court retain jurisdiction over this action in order to implement and carry out the terms of all orders and decrees that are entered or to entertain any suitable application or motion by the Commission for additional relief within the jurisdiction of this Court.