U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20423 / January 4, 2008
Securities and Exchange Commission v. Mark Michel, et al., Civil Action No. 06C-3166-Castillo (N.D. Ill.)
SEC Prevails in Insider Trading Bench Trial
The Securities and Exchange Commission announced that on November 26, 2007, the Honorable Ruben Castillo, United States District Judge for the Northern District of Illinois, entered a permanent injunction and other relief against Mark Michel, finding him liable for securities fraud resulting from an insider trading scheme after a bench trial held in Chicago from October 1-5, 2007. The Court concluded that Michel, a registered representative with Wachovia Securities, LLC, violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 by repeatedly trading on material, non-public information in the securities of Blue Rhino Corp. (Blue Rhino) in the week leading up to Blue Rhino's February 9, 2004 merger announcement with Ferrellgas Partners, LP.
In its 61-page opinion, the Court found that a long-time friend of Michel's (who was a co-defendant in the case who had previously settled) tipped Michel about Blue Rhino's merger negotiations in a telephone call on the night of January 29, 2004. The Court found that the following morning, having conducted minimal research on the stock and having ignored it after reading a magazine article about it just four months earlier, Michel began a six-day buying spree for himself, his relatives and his customers in which he bought $1.4 million of Blue Rhino stock.
The opinion also found that several other individuals had received the same information as Michel on the night of January 29 or shortly thereafter, all of whom were friends or relatives of a business partner of one of Blue Rhino's directors, and all made unusually large and unexplained purchases of Blue Rhino in the week before the merger. The judge found that based on the close relationships among the individuals involved, a series of unusual telephone calls on January 29 and 30, the unusually large purchases of Blue Rhino that followed almost immediately, and numerous "shifting, contradictory and implausible or inadequate explanations" of the purchases, Michel and the other individuals had engaged in insider trading.
The Court permanently enjoined Michel from violating Section 10(b) of the Exchange Act of 1934 and Rule 10b-5, and ordered him to pay disgorgement of $277,881, representing profits gained from his illegal insider trading, and prejudgment interest of $68,307. The Court reserved jurisdiction to set an appropriate civil penalty.
The Commission also sued four other defendants, all of whom had previously settled, leaving Michel as the only defendant to go to trial. For more information, regarding the Commission's complaint filed in June 2006, see Litigation Release No. 19722 (June 9, 2006)