U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21192 / August 31, 2009
Securities and Exchange Commission v. Sarath B. Gangavarapu, Civil Action No. CV09-231, (E.D. Tenn., Chattanooga Div., filed August 31, 2009)
SEC FILES INSIDER TRADING CHARGES RELATED TO ACQUISITION OF COVANSYS CORPORATION
On August 31, 2009, the Securities and Exchange Commission filed a settled insider trading action against Sarath B. Gangavarapu, a resident of Chattanooga, Tennessee. The Commission's complaint, filed in the U.S. District Court for the Eastern District of Tennessee, alleges that Gangavarapu violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder when he misappropriated material non-public information from his sister, whose husband was an executive officer at Covansys Corporation, and purchased over 54,000 shares of Covansys stock at a cost of over $1.4 million based on that information during the nine days leading up to Covansys' public announcement that it would be acquired by Computer Sciences Corporation (CSC).
The Commission's complaint alleges that throughout the month of April 2007, Covansys was in discussions with CSC and another company about their interest in acquiring it. According to the complaint, Gangavarapu spoke frequently with his sister by telephone during April 2007 and asked her questions about her husband's work activities and whereabouts. Among other things, Gangavarapu's sister told him that her husband was in meetings behind closed doors, that he was working extra hours and that he traveled twice overseas for work. The complaint alleges that on the night of April 24, 2007, after learning from her husband that Covansys' board of directors would vote the next day on which acquisition offer to accept, Gangavarapu's sister told Gangavarapu "by tomorrow, it's a relief, it will be over." According to the complaint, Gangavarapu purchased over 17,000 shares of Covansys stock at a cost of nearly $450,000 between April 17 and April 24, 2007. On April 25, 2008, the day after the telephone call from his sister, Gangavarapu purchased an additional 37,000 shares of Covansys stock at a cost of over $980,000. After the close of the stock market on April 25, 2007, Covansys and CSC publicly announced that CSC would acquire Covansys for $34 per share. The next day, the price of Covansys' stock rose 24%. According to the complaint, Gangavarapu's profits from his illegal trading totaled more than $361,761.
Without admitting or denying the allegations in the complaint, Gangavarapu has consented to the entry of a final judgment permanently enjoining him from further violations of the antifraud provisions of the Exchange Act and ordering him to pay disgorgement of his ill-gotten gains in the amount of $361,761.56, prejudgment interest of $46,408.12 and a civil penalty of $361,761.56.
The Commission acknowledges the assistance and cooperation of the Financial Industry Regulatory Authority in this matter.