Kenneth L. Miller (KM-5614)
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission ("Commission") alleges:
1. This action arises from profitable insider trading in the common stock of Barnett Banks, Inc. ("Barnett"). While employed as an analyst by Morgan Stanley Dean Witter & Co. ("Morgan Stanley"), Ronald K. Mahabir ("Mahabir") misappropriated material nonpublic information regarding an impending merger in 1997 involving Barnett and NationsBank Corporation ("NationsBank"). In further breach of his fiduciary duties to Morgan Stanley and its clients, Mahabir provided the material nonpublic information about Barnett to Defendant Andrew W. Sachs ("Sachs").
2. While in possession of such material nonpublic information, Sachs traded in the securities of Barnett. As a result of his fraudulent trading, Sachs made profits of $19,197.
3. The SEC seeks an injunction against future violations, disgorgement of Sachs' illegal profits, prejudgment interest, and civil monetary penalties pursuant to 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].
4. This Court has jurisdiction pursuant to 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]. Defendant 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 his illegal conduct.
DEFENDANT - TIPPEE
5. Defendant Andrew W. Sachs, age 29, is currently unemployed. From approximately July 1996 to April 1997, Sachs was employed by Morgan Stanley as an analyst in the Merchant Banking Division of its New York office, where he met and became acquainted with Mahabir. Sachs was not employed by Morgan Stanley at the time of the trading described herein.
OTHER RELEVANT PERSON - TIPPER
6. Ronald K. Mahabir, age 28, was employed as an analyst in the real estate section of Morgan Stanley's New York office during the time of the violations alleged herein.
7. Plaintiff SEC repeats and realleges Paragraphs 1 through 6 above.
Morgan Stanley's Policies Concerning Insider Trading
8. At all relevant times, Morgan Stanley's policies prohibited its employees from engaging in insider trading by using any material nonpublic information concerning its clients to either buy or sell securities. Morgan Stanley's policies also prohibited its employees from passing on such material nonpublic information to others. Mahabir, as a current employee, and Sachs, as a former employee, were aware of these policies because they received training as analysts that specifically addressed the fact that insider trading was prohibited and emphasized the need for compliance with the federal securities laws.
Mahabir Learns of Barnett's Imminent Acquisition
9. During 1997, Mahabir was friends with another Morgan Stanley analyst who also worked in the real estate section. In mid-August of 1997, Mahabir's friend transferred to the banking group, whereupon he immediately began working on the team that was advising Barnett in its bid to be acquired by another financial institution. At the time Mahabir's friend transferred to the banking group, it was clear that Barnett would be acquired imminently. Soon after Mahabir's friend transferred to the banking group, Mahabir learned this material nonpublic information concerning Barnett.
10. Shortly after learning of the status of the Barnett transaction, Mahabir, through a series of phone calls during the last week of August 1997, tipped Sachs with material nonpublic information regarding Barnett's pending acquisition.
Sachs Trades on Inside Information Obtained From Mahabir
11. In the months prior to August of 1997, Sachs was invested primarily in mutual funds held in accounts at two brokerage firms. On August 28, 1997, following Mahabir's tip about the pending Barnett merger, Sachs liquidated his entire portfolio in one of the brokerage firm accounts and, through that account, purchased 1,620 shares of Barnett stock for $87,919. Sachs also used margin privileges to make part of the purchase.
Nationsbank Announces A Merger With Barnett
12. On August 29, 1997, NationsBank and Barnett publicly announced that they had reached a definitive merger agreement. Following the public announcement, Barnett's stock price rose approximately 24 percent, from $54.8125 to $68.125 per share.
Sachs Sells His Barnett Stock
13. On August 29, 1997, following that day's public announcement of the Barnett merger, Sachs sold 1,120 of the 1,620 Barnett shares that he had purchased the previous day. Sachs sold the remaining 500 shares of his Barnett position the following Tuesday, September 2, 1997. Sachs realized total profits of $19,197.
Mahabir and Sachs Violate Their Fiduciary Duties
14. As an employee, Mahabir owed a fiduciary duty to Morgan Stanley and its clients. As a result, Mahabir had a duty not to trade while in possession of material nonpublic information concerning Morgan Stanley's clients, and not to pass on such material nonpublic information to others. In violation of these duties, and for his direct or indirect benefit, Mahabir disclosed the pending acquisition of Barnett to Sachs. Mahabir's disclosure of this information was made under circumstances in which he knew, or acted with reckless disregard of, the fact that Sachs was likely to effect transactions in Barnett stock or to disclose the information to others who were likely to effect such transactions.
15. Sachs knew, should have known, or acted in reckless disregard of the fact that the information he received, directly or indirectly, from Mahabir was nonpublic, and that the information was disclosed to him in violation of a fiduciary or other duty of trust and confidence. Accordingly, Sachs inherited Mahabir's duty not to trade on that information and not to communicate it improperly to others.
PRAYER FOR RELIEF
Plaintiff Securities and Exchange Commission requests judgment:
(i) permanently enjoining defendant Andrew W. Sachs from violating Sections 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 defendant Andrew W. Sachs to disgorge his profits realized from the unlawful trading described above, together with prejudgment interest;
(iii) ordering defendant Andrew W. Sachs to pay civil monetary penalties under 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: March 5, 2002
S/ Kenneth L. Miller