U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20095 / April 27, 2007
SEC v. Blue Bottle Limited and Matthew C. Stokes, 07 Civ. 01-CV-1380 (CSH) (KNF) (S.D.N.Y.)
Court Orders Permanent Injunction and Payment of Over $10 Million in Trading Scheme
On April 24, 2007, the United States District Court for the Southern District of New York entered a default judgment against Defendants Blue Bottle Limited and Matthew Charles Stokes in an action filed by the Securities and Exchange Commission earlier this year. The Honorable Charles S. Haight, Jr.'s Order enjoins Stokes, a citizen of Guernsey, and Blue Bottle, a Hong Kong chartered company, from violations of the antifraud provisions of the federal securities laws, and orders them jointly and severally liable for $10,846,785 in disgorgement and penalties. Specifically, the Court ordered $2,707,177 in disgorgement of profits from the illegal trading, $18,047 in prejudgment interest, and an $8,121,561 million penalty equal to three times the profits from the illegal trading.
The Court found that the Defendants opened a U.S. brokerage account using false information and documents. During a six week period in January and February 2007, Defendants traded just before news releases of at least 12 different U.S. public companies and amassed profits totaling approximately $2.7 million. "Given the disparate companies in which the Defendants traded, the nature of the Defendant's trading, the number of times Defendants profited from trading shortly before news releases, and amount, of profits the trading generated," the Court concluded that "the Defendants employed devices, schemes, or artifices to defraud." The Court then found that the Defendants violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rule 10b-5 both by "their deceptive conduct in obtaining material, non-public information," as well as by trading while in possession of that information.
The Commission acknowledges the assistance of the Options Regulatory Surveillance Authority.