U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20297 / September 25, 2007
SEC v. Joseph P. Keeney, C.A. No. 1:07CV01703 (JR) (D.D.C.)
SEC Files Settled Insider Trading Charges Against Former Business Consultant to Frederick's of Hollywood, Inc.
The Securities and Exchange Commission today filed a settled civil injunctive action in the United States District Court for the District of Columbia against Joseph P. Keeney, a former consultant to Frederick's of Hollywood, Inc. ("Frederick's"), a privately held company that markets women's intimate apparel. The Commission charged Keeney with engaging in illegal insider trading by purchasing securities of Movie Star, Inc. ("Movie Star"), a publicly traded company that also markets women's intimate apparel, in advance of the public announcement that Frederick's and Movie Star had entered into a merger agreement. Without admitting or denying the allegations in the Commission's complaint, Keeney has consented to the entry of a final judgment imposing injunctive and monetary relief.
The Commission's complaint alleges that Keeney learned of the possible merger at least as early as May 17, 2006, when he participated in a meeting at which Frederick's board of directors formally launched the efforts of its special committee to negotiate the possible merger with Movie Star. The complaint further alleges that, beginning in June 2006, Keeney directly participated in the merger negotiations between the special committees of Frederick's and Movie Star, and that Keeney was charged with maintaining open and regular communication between the two special committees. In a quarterly report filed with the Commission on November 14, 2006, Movie Star disclosed that it was engaged in "discussions with a private apparel company with respect to a possible combination of the companies," but without disclosing Frederick's by name. According to the complaint, between September 14 and November 20, 2006, Keeney made over a dozen purchases totaling 157,000 Movie Star shares at an average cost basis of $0.97 per share, on the basis of material, nonpublic information concerning both the possible merger as well as the financial projections for Movie Star he had received in the course of the merger discussions. On December 19, 2006, both Movie Star and Frederick's publicly announced that the two companies had entered into a merger agreement. That same day, the price of Movie Star shares increased to close at $1.46. As a result, the complaint alleges, Keeney had imputed illicit profits of $77,540.50 from his unlawful trading.
Without admitting or denying the allegations in the complaint, Keeney has agreed to settle the Commission's charges by consenting to the entry of a final judgment that would: (i) permanently enjoin him from further violations of Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder; (ii) require him to pay $81,210.96 in disgorgement and prejudgment interest; and (iii) order him to pay a civil penalty of $77,540.50.