THOMAS A. ZACCARO, Cal. Bar # 183241
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission ("Commission") alleges:
1. This matter involves insider trading in the securities of Interact Commerce Corp. ("Interact") of Scottsdale, Arizona, by Defendant John Harbottle ("Harbottle") prior to the March 28, 2001, public announcement that Interact was to be acquired by Sage Group plc ("Sage").
2. Beginning on or about February 7, 2001, Harbottle obtained material, nonpublic information regarding a transaction involving Sage and Interact by virtue of his position as Interact's Chief Financial Officer and his direct participation in the transaction. Harbottle owed a fiduciary duty or similar duty of trust and confidence to Interact and the company's shareholders to maintain the confidentiality of information concerning the Interact-Sage transaction. In breach of that duty, Harbottle used this material, nonpublic information to purchase 5,000 shares of Interact stock before the public announcement of the transaction. Harbottle sold these shares after Interact's stock price rose following the public announcement of the Interact-Sage transaction and realized illegal profits of nearly $17,000.
JURISDICTION AND VENUE
3. This Court has jurisdiction over this action pursuant to Sections 21(d), 21(e), 21A(a)(1) and 27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78u(d), 78u(e), 78u-1(a)(1) and 78aa.
4. Defendant Harbottle, 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.
5. This Court is an appropriate venue for this action, pursuant to Section 27 of the Exchange Act, 15 U.S.C. § 78aa, because certain of the transactions, acts, practices and courses of business constituting violations of the laws alleged herein occurred within the District of Arizona.
6. John Harbottle, age 47, resides in Scottsdale, Arizona. At all relevant times, Harbottle was Interact's Chief Financial Officer.
7. Interact is a Delaware corporation based in Scottsdale, Arizona. The company develops, produces, and sells computer software used by sales personnel. The company's stock is registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 and, at all relevant times, traded on the Nasdaq National Market System. Interact is now a wholly-owned subsidiary of Sage.
8. Sage is an English corporation based in Newcastle-upon-Tyne, England. Sage develops, produces, and sells a variety of business and retail software programs.
THE INTERACT-SAGE TRANSACTION
9. In early 2001, Interact had an original equipment manufacturer ("OEM") relationship with Sage to provide computer programs for Sage to re-sell. The Chief Executive Officers of Sage and Interact met in person on January 30 and 31, 2001, in Arizona to discuss broadening the OEM relationship between the companies. As a result, senior management from Sage and Interact engaged in telephone meetings on February 8 and 9, 2001, to discuss the relationship further.
10. During these phone calls, Sage indicated that it would prefer to own Interact instead of maintaining the OEM relationship. Sage officials told Interact that they valued Interact at approximately $14½ to $15 per share, and that American and British law made an all-cash purchase of Interact most favorable. At the time, Interact stock traded at approximately $9½ per share. Interact's management reported this information to its Board of Directors during a telephone meeting on February 13, 2001. The Board authorized management to retain an investment banking firm to investigate the potential Sage offer and to explore other possible acquisition partners for the company. On February 14, 2001, Interact engaged in a telephone conference with several bankers at an investment banking firm. During this call, the participants discussed Sage's indication of interest in acquiring Interact, and proposed contacting other software companies about a possible merger or other deal.
11. Interact, Sage, and the investment bankers eventually negotiated a transaction in which Sage agreed to purchase Interact for $12 per share. This deal was publicly announced before trading began on March 28, 2001.
HARBOTTLE OBTAINS INFORMATION ABOUT THE
12. Harbottle was aware of the Interact-Sage transaction by virtue of his position as Interact's Chief Financial Officer. Harbottle attended portions of the January 2001 meetings with Sage's management at which Sage expressed its interest in expanding its relationship with Interact. Harbottle also participated in the February 8 and 9 telephone calls in which Sage expressed its interest in acquiring Interact in an all-cash deal. Harbottle also attended the February 13 Board of Directors meeting. At that meeting, the Board instructed Harbottle to hire the investment banking firm for the purpose of negotiating the acquisition deal with Sage and to explore other potential business combinations. Finally, Harbottle participated in the February 14 telephone call with the investment banking firm (after having scheduled the meeting on February 13 following the meeting of the Board of Directors) in which the Sage acquisition and other potential corporate transactions were discussed.
13. Harbottle knew, or was reckless in not knowing, that the information regarding Sage's declared interest in purchasing Interact was nonpublic and that he owed a fiduciary duty or similar duty of trust and confidence to Interact and the company's shareholders not to use this information for his personal benefit.
INTERACT'S CONFIDENTIALITY POLICIES
14. Upon joining Interact in May 2000, Harbottle signed the company's "Employee Policy" concerning "Confidential Information and Insider Trading."This policy expressly warned employees that they risked liability if they traded in Interact stock based on non-public, material information. A list of the types of information that "are usually material" included "acquisitions, including mergers and tender offers." Harbottle was later given responsibility for administering the company's insider trading policy. In this capacity, subsequent versions of the "Employee Policy" direct Interact personnel to report occurrences of insider trading to Harbottle for investigation and action. Interact employees also were encouraged to direct questions about the policy or the materiality of information directly to Harbottle or to the company's outside attorney.
15. Harbottle was also aware that Interact instituted procedures to maintain the confidentiality of the Interact-Sage transaction. The parties to the deal referred internally to the proposed transaction by the code name "Isaiah," and only a limited number of Interact employees knew of the potential Sage acquisition.
THE PUBLIC ANNOUNCEMENT OF THE
16. On Tuesday, March 27, 2001, Interact stock closed at $7.94 per share. Interact and Sage issued a press release announcing Sage's acquisition of Interact at $12 per share before trading began on Wednesday, March 28, 2001. Interact stock immediately rose to a price just below the offer price for the company, and closed at $11.81. The closing price represents a gain of $3.87 per share, or a 48% increase from the previous day.
HARBOTTLE BUYS INTERACT STOCK BEFORE
17. On February 14, 2001, in breach of his fiduciary duty or similar duty of trust and confidence to Interact and its shareholders not to use confidential information regarding the Interact-Sage transaction for his personal benefit, Harbottle purchased 5,000 shares of Interact stock at an average price of $8.42 for a total cost of approximately $42,000. Harbottle placed his purchase order via the Internet on a computer located in his office in Scottsdale, Arizona.
18. At the time Harbottle purchased his Interact shares, he knew, or was reckless in not knowing, that the information he possessed concerning the Interact-Sage transaction was confidential and that trading for his own benefit while using that information was a breach of fiduciary duty or similar duty of trust and confidence that he owed to Interact. Through his unlawful trades, Harbottle realized illegal profits of $16,969. Harbottle did not disclose these trades to Interact prior to the trades nor did he obtain Interact's consent to use material nonpublic information concerning the Interact-Sage transaction in effecting those trades.
FRAUD IN CONNECTION WITH THE
Section 10(b) of the Securities Exchange Act
19. Paragraphs 1 through 18 are realleged and incorporated herein by reference.
20. Defendant, by engaging in the conduct described in paragraphs 1 through 18 above, 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 material facts necessary in order to make the statements made, in 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.
21. By reason of the foregoing, Defendant 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 this Court:
Issue findings of fact and conclusions of law that the Defendant committed the violations charged and alleged herein.
Permanently enjoin Defendant from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
Order Defendant to disgorge all ill-gotten gains from his illegal conduct, gained directly or indirectly from the transactions complained of herein, together with prejudgment interest thereon.
Order Defendant to pay a civil money penalty pursuant to Section 21A of the Exchange Act, 15 U.S.C. § 78u-1.
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.
Grant such other and further relief as this Court may determine to be just and necessary.
DATED: March 14, 2002