U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20385 / December 5, 2007
SEC v. Mitchell Drucker and Ronald Drucker, Defendants, and William Minerva, Relief Defendant, 06 Civ. 1644 (SDNY) (CM)
Jury Finds Attorney and His Father Liable for Committing Insider Trading
On Monday, December 3, 2007, a jury in Manhattan federal court returned a verdict in favor of the U.S. Securities and Exchange Commission finding a Long Island attorney and his father liable for insider trading in the stock of NBTY, Inc. The defendants are Mitchell S. Drucker, the former associate general counsel of NBTY, a nutritional supplements manufacturer and retailer, and his father, Ronald Drucker, a former New York City police detective. The Commission had charged that, while Mitchell Drucker was a lawyer at NBTY, and had learned that NBTY was about to announce lower than expected quarterly earnings, he and his father sold their holdings of NBTY stock just before the negative announcement. Collectively, the defendants avoided $197,243 in losses by selling in advance of the announcement.
United States District Judge Colleen McMahon, who presided over the trial, will determine the sanctions to be imposed against the defendants. The Commission is seeking a judgment requiring the defendants to pay disgorgement equal to their avoided losses plus penalties up to three times the amount of disgorgement, injunctions and, against Mitchell Drucker, an officer and director bar.
Mitchell Drucker, age 38, is a resident of Saint James, New York. Ronald Drucker, age 63 is a resident of Mount Sinai, New York.
The Commission charged that on October 18, 2001, Mitchell Drucker directed the sale of his entire holdings of NBTY stock, consisting of 25,700 shares, after learning material, non-public information that NBTY's fourth quarter earnings per share ("EPS") would be about 50 percent lower than analysts' expectations. The day after Mitchell Drucker's sales, NBTY publicly announced, through a press release, that its fourth quarter EPS would be significantly lower than analysts' expectations. After NBTY's earnings news became public, the price of NBTY shares fell by 41%.
The Commission also charged that just after Mitchell Drucker began selling his stock, on October 18, 2001, he engaged in a series of telephone calls with Ronald Drucker in which Mitchell Drucker conveyed the material non-public information regarding NBTY's fourth quarter EPS results. As a result of this tip, Ronald Drucker also sold his entire holdings of NBTY stock, consisting of 10,000 shares, on October 18, 2001. Furthermore, while Mitchell Drucker was placing his own trades on October 18, 2001, he also directed the sale of the entire NBTY holdings of his friend, relief defendant William Minerva, which consisted of 1,575 shares.
By trading in advance of the public release of NBTY's fourth quarter EPS, Mitchell Drucker, Ronald Drucker, and Minerva avoided losses of $138,174, $51,116, and $7,953, respectively.
The jury found that defendants Mitchell Drucker and Ronald Drucker each violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Judge McMahon will make the determination as to the relief that should be imposed against the defendants and relief defendant. The Commission seeks an order permanently enjoining the defendants from violations of the above provisions of the federal securities laws, requiring disgorgement of losses avoided, plus prejudgment interest thereon, and imposing civil penalties pursuant to Section 21A of the Exchange Act. The Commission also seeks an order barring Mitchell Drucker from acting as an officer or director of a public company. In addition, the Commission seeks disgorgement plus prejudgment interest from Minerva, as a relief defendant, for the losses Minerva avoided when Mitchell Drucker sold Minerva's NBTY shares.
For further information see Litigation Releases No. 19587.