U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22055 / August 1, 2011
Securities and Exchange Commission v. Compania International Financiera S.A., et al., Civil Action No. 11-cv-04904-DLC, United States District Court, Southern District of New York
SEC OBTAINS COURT ORDERS CONTINUING FREEZE ON MORE THAN $32 MILLION IN ASSETS OF THREE SWISS ENTITIES IN INSIDER TRADING CASE
The Securities and Exchange Commission announced today that it has obtained court orders continuing asset freezes on more than $32 million in assets controlled by three Swiss entities charged with insider trading ahead of a July 11, 2011 public announcement that Swiss-based Lonza Group Ltd. will acquire Connecticut-based Arch Chemicals, Inc. The Commission filed its action on July 15, 2011, in the U.S. District Court for the Southern District of New York, and the court issued a temporary asset freeze that day against defendants Compania International Financiera S.A. (Compania”), Coudree Capital Gestion S.A. (“Coudree”), and Chartwell Asset Management Services (“Chartwell”). The District Court has now entered orders continuing those asset freezes in specific amounts based on the size of the defendants’ profits plus potential penalty amounts. The Court entered an asset freeze order by consent as to defendants Compania and Coudree on July 26, 2011, freezing approximately $14.7 million of their assets. After a hearing as to defendant Chartwell on July 28, 2011, the court entered an order on July 29, 2011, freezing over $18 million of its assets.
The Commission’s complaint was filed within days of the alleged insider trading. According to the Commission’s filings, Compania and Coudree purchased more than 687,000 common shares of Arch Chemicals between July 5 and July 8, mostly in accounts based in London, England. During the same time period, Chartwell purchased contracts for difference (“CFDs”) equivalent to 425,300 Arch Chemicals common shares through a brokerage account in London. The Court noted in its opinion and order that CFDs constitute securities as defined by the federal securities laws. Immediately after the acquisition announcement on July 11, the firms began selling the recently-purchased Arch Chemicals common stock and CFDs for millions of dollars in profits. The Commission’s complaint alleges that, at the time the defendants purchased the securities, they are believed to have been in possession of material, non-public information about Lonza’s proposed acquisition of Arch Chemicals.
After a hearing on July 28, 2011, before the Honorable Denise L. Cote in the United States District Court for the Southern District of New York, the District Court on July 29, 2011, ordered an asset freeze against Chartwell in the amount of the trading profits ($4,651,995) plus a potential civil penalty of three times that amount ($13,955,985), totaling $18,607,980. The Court further ordered Chartwell to repatriate all assets obtained from the activities described in the Complaint to the United States, and to refrain from destroying any potentially discoverable materials related to the Complaint. In the Court’s Opinion and Order issued on July 29, Judge Cote found that “the discovery collected by the [Commission] … reveals a pattern of trading [by Chartwell] in the context of a tip that is not just consistent with, but also suggestive of, insider trading,” and concluded that the relief sought by the Commission was thus warranted because “there is a likelihood that the [Commission] will succeed on the merits in establishing a 10(b) violation” by Chartwell.
Previously, on July 26, 2011, the District Court issued an asset freeze order by consent as to defendants Compania and Coudree. Those defendants have deposited $14,784,006 into a court-controlled bank account pending the outcome of the Commission’s action, including more than $7 million in trading profits, after agreeing to the entry of the asset freeze.
The Commission’s complaint charges the defendants with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to a preliminary injunction, asset freeze and other equitable relief, the complaint seeks a permanent injunction, disgorgement of illegal trading profits plus prejudgment interest, and civil monetary penalties. The Commission’s investigation is continuing. The Commission acknowledges the assistance of the FINRA Office of Fraud Detection and Market Intelligence in its investigation.
For additional information, see Litigation Release No 22049 (Jul. 20, 2011).