U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21972 / May 18, 2011
SEC v. Mary Beth Knight and Rebecca Norton, Civ. 2:11-cv-00973-DGC (D. Ariz.)
SEC Charges Former SVP of Choice Hotels International, Inc. and Arizona Realtor with Insider Trading
On May 17, 2011, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the District of Arizona alleging that a former senior vice president of Choice Hotels International, Inc. (“Choice Hotels”) and an Arizona real estate professional engaged in insider tipping and trading ahead of negative news about the company’s earnings. The defendants are residents of Maricopa County, Arizona.
The Commission’s complaint alleges that defendant Mary Beth Knight, age 50, while a senior vice president at Choice Hotels, attended a June 2006 meeting of executives at which disappointing projections of the company’s second quarter 2006 earnings results were discussed. In breach of her duty to the company and its shareholders, Knight sold 12,000 shares of Choice Hotels stock, avoiding losses of more than $140,000 that she would have suffered if she had sold the stock at its closing price on July 26, 2006, the first day of trading after the company announced the bad earnings news. The stock price dropped nearly twenty-five percent that day. The complaint also alleges that shortly after attending the June 2006 meeting Knight tipped defendant Rebecca Norton, age 52, who then sold more than 3000 shares of Choice Hotels stock over four days, and later sold short an additional 500 shares for total profits and losses avoided of more than $44,000. Shortly after her stock sales, Knight paid Choice Hotels an amount representing her losses avoided.
The complaint alleges that Knight and Norton violated Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5. The complaint seeks permanent injunctions; disgorgement from Knight of her losses avoided, with prejudgment interest thereon; disgorgement from Knight and Norton, jointly and severally, of Norton’s losses avoided and illegal profits, with prejudgment interest thereon; and imposition of civil money penalties pursuant to Section 21A of the Exchange Act.
Knight has consented, without admitting or denying the allegations in the complaint, to the entry of a proposed final judgment: (1) permanently enjoining her from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5; (2) ordering her to disgorge her losses avoided of $140,400, but deeming her disgorgement satisfied by her payment to Choice Hotels; (3) ordering her to disgorge Norton’s losses avoided and profits of $44,711; and (4) imposing a civil penalty of $185,111.
Norton has consented, without admitting or denying the allegations in the complaint, to the entry of a proposed final judgment permanently enjoining her from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5 and providing that, upon motion of the Commission, the court will determine whether a civil penalty is appropriate and the amount of any such penalty. The proposed final judgments are subject to the approval of the district court.