U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21256 / October 21, 2009
Securities and Exchange Commission v. John Zeglis, As Executor, Successor/Representative To James D. Zeglis, Gautam Gupta, Jim W. Dixon and Lance D. McKee, Civil Action File No. 08-cv-5259 (N.D. Ill. October 16, 2009)
Federal Judge Permanently Enjoins Dr. Gautam Gupta From Future Insider Trading Violations, Orders Him To Pay Disgorgement of $689,401 In Illegal Profits, And Orders Him To Pay A Civil Penalty Equal To His Illegal Profits
The Securities and Exchange Commission announced that the Honorable William J. Hibbler, United States District Judge for the Northern District of Illinois, entered Final Judgment as to defendant Dr. Gautam Gupta ("Gupta") of Rockford, Illinois on October 16, 2009. Gupta was permanently enjoined from future violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder.
The Court ordered disgorgement and prejudgment interest against Gupta in the respective amounts of $689,401 and $188,096.17. The Court also imposed a civil penalty against Gupta in the amount of $689,401, the full amount of his insider trading profits. The Court ordered Gupta to satisfy payment of these amounts in accordance with a monthly payment schedule over a period of one year. Gupta consented to the entry of the judgment without admitting or denying the allegations of the Commission's Complaint.
The Commission's complaint alleged fraud in connection with insider trading in the securities of Georgia-Pacific Corporation by three individuals who received tips directly or indirectly from defendant James D. Zeglis ("Zeglis"), now deceased. The Complaint alleged that Zeglis misappropriated material nonpublic information from his brother, a member of Georgia-Pacific's board of directors, and further alleged that on November 10, 2005, three days before a public announcement that Georgia-Pacific had agreed to be acquired by Koch Industries, Inc., Zeglis tipped Gupta and Jim W. Dixon ("Dixon"), both of whom purchased Georgia-Pacific securities. Gupta, in turn, tipped Lance D. McKee ("McKee"), who also purchased Georgia-Pacific securities.
Further, the Complaint alleged that after Zeglis tipped Dixon, Dixon purchased Georgia-Pacific options on Zeglis's recommendation, and paid Zeglis a kickback from his ill-gotten gains. Within moments after meeting with Zeglis, Gupta transferred $400,000 from a commodities brokerage account to his bank account and placed a 40 second phone call to McKee. After the phone call from Gupta, McKee almost immediately purchased 500 shares of Georgia-Pacific stock, a stock he had never previously purchased. Within a few hours, Gupta had opened a brokerage account, transferred the $400,000 into his new brokerage account, and made his first stock purchase in ten years by purchasing 20,000 shares of Georgia-Pacific. The following day, Gupta purchased an additional 10,000 shares and then purchased 241short term call options in Georgia-Pacific, increasing his investment in Georgia-Pacific securities to more than $1 million. Further, the Complaint alleged that on Sunday, November 13, 2005, Koch Industries, Inc. ("Koch") publicly announced a definitive agreement for a Koch subsidiary to make a cash tender offer for all shares of Georgia-Pacific. The following day, Georgia-Pacific's stock price increased 36% in response to the announcement. Gupta then sold his Georgia-Pacific securities, realizing profits of $689,401.
Final judgments have previously been entered against all other defendants.
See also: LR 20852 (January 13, 2009); LR 20779 (October 14, 2008); LR 20720A (September 16, 2008)