U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21954 / May 3, 2011
Securities and Exchange Commission v. Patrick M. Carroll, James P. Carroll, William T. Carroll, David A. Stitt, John P. Monroe, Stephen Somers, David Mark Calcutt and Christopher T. Calcutt, 3:11-CV-00165-JGH (W.D. Ky. March 17, 2011)
SEC Charges Kentucky Steel Company Executives With Insider Trading
On March 17, 2011, the Securities and Exchange Commission charged four executives at a Louisville-based steel processing company and four of their family and friends with illegal insider trading in advance of the company’s acquisition.
The SEC alleges that Patrick Carroll, William “Tad” Carroll, David Mark Calcutt and David Stitt – who are vice presidents of sales at Steel Technologies – traded based on confidential information about their company’s acquisition by Mitsui & Co. (USA) Inc. Three of the four executives illegally tipped family members or friends. The ring of eight traders together purchased $578,000 of Steel Technologies stock in the month prior to the public announcement of the acquisition and made $320,000 in illegal profits.
The SEC alleges that Patrick Carroll tipped his son James Carroll, and Calcutt tipped his brother Christopher Calcutt. David Stitt tipped his friend John Monroe, who then tipped another friend Stephen Somers.
According to the SEC’s complaint filed in U.S. District Court for the Western District of Kentucky, Patrick and Tad Carroll are brothers of Michael Carroll, who is the president and chief operating officer of Steel Technologies. Patrick traded after Michael introduced him to Mitsui representatives who were touring the Steel Technologies facility where Patrick worked. Patrick tipped his son James, who then purchased his own Steel Technologies stock shortly before the acquisition was publicly announced. Tad bought more than $84,000 of Steel Technologies stock approximately one week before the public announcement following his own communications with Michael.
The SEC alleges that before getting inside information about the forthcoming acquisition, Calcutt liquidated nearly all of his company stock. However after he went on a hunting trip with Michael Carroll, Calcutt soon started aggressively buying Steel Technologies stock at higher prices. He also tipped his brother Christopher Calcutt, who then sold all of his shares in another company for a loss and used that money to buy Steel Technologies stock on margin to increase his illicit gains.
According to the SEC’s complaint, Stitt, Monroe and Somers have known each other since childhood. Stitt learned about the forthcoming acquisition on the Friday before the public announcement and immediately purchased Steel Technologies stock that same day. Over the weekend, Stitt told Monroe about the forthcoming acquisition. On Monday, Monroe passed the inside information to Somers. That same day, Monroe told his broker to immediately open a new account so he could buy Steel Technologies stock. Somers also immediately traded based on the inside information. During the SEC’s investigation, Stitt and Monroe contradicted each other’s testimony about their communications and advance knowledge of the acquisition.
The SEC’s complaint charges the eight defendants with securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks permanent injunctive relief, disgorgement of illicit profits with prejudgment interest, and the imposition of monetary penalties against all defendants.