U.S. SECURITIES & EXCHANGE COMMISSION
Litigation Release No. 22209 / December 22, 2011
Securities and Exchange Commission v. Alfred S. Teo, Sr., et al., Civil Action No. 04-1815-SDW-MCA (D. N.J.)
Court Enters $49 Million Final Judgment Against Alfred S. Teo, Sr. and MAAA Trust
The Securities and Exchange Commission announced that on December 21, 2011, United States District Court Judge Susan D. Wigenton entered a final judgment ordering defendants Alfred S. Teo, Sr. and the MAAA Trust, a trust Teo controlled, to pay a total of $49,493,143.15 in disgorgement, prejudgment interest and penalties for false filings regarding their Musicland Stores Corporation stock. In particular, the Court ordered Teo and the Trust to pay $17,422,054.13 in disgorgement plus $14,649,034.89 in prejudgment interest, and civil penalties of $17,422,054.13. These amounts are in addition to (i) $996,782.68 in disgorgement and prejudgment interest Teo paid for his insider trading violations pursuant to the Court’s previous order of March 15, 2010, and (ii) a $1 million fine that Teo paid in a parallel criminal action for insider trading. The Court also enjoined Teo and the Trust from further violations of Sections 13(d) and 16(a) of the Securities Exchange Act of 1934 and Rules 13d-1, 13d-2 and 16a-3 thereunder. Previously, the Court had enjoined Teo from further violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder, and barred him from serving as an officer and director of a public company.
On May 25, 2011, following a ten day trial, a jury sitting in Newark, New Jersey returned a verdict in favor of the Commission finding Teo liable for securities fraud and disclosure violations on all counts against him and finding the Trust liable for disclosure violations. Prior to the trial, on August 10, 2010, the Court granted the Commission’s motion for summary judgment against Teo finding him liable for violations of Section 16(a) of the Exchange Act and Rule 16a-3 thereunder.
The Commission’s complaint, filed on April 22, 2004, charged Teo and others with insider trading and making false Commission filings. Specifically, Teo and ten of his relatives, friends and colleagues engaged in insider trading in Musicland and C-Cube Microsystems, Inc. stock. Teo, a major Musicland shareholder, learned about a tender offer for Musicland, and in breach of a duty of trust and confidence to Musicland, he purchased Musicland stock on the basis of this information prior to the company’s December 7, 2000 public announcement of the tender offer. Teo tipped eight others with this information, who purchased Musicland stock prior to the Musicland announcement. Teo also engaged in insider trading in the securities of C-Cube. Teo, a director of Cirrus Logic, Inc., which had been negotiating to acquire C-Cube, misappropriated from Cirrus material, non-public information regarding the negotiations, and he purchased C-Cube stock shortly before C-Cube announced on March 26, 2001 that it had agreed to be acquired by another company. Teo tipped his business partner, defendant Mitch Sacks, with this information, who purchased C-Cube stock prior to the C-Cube announcement. Teo also filed false information with the Commission and deceived the investing public regarding his Musicland stock ownership. Between July 1998 and January 2001, Teo, the Trust, and Teren Seto Handelman, the Trust’s trustee and Teo’s sister-in-law, filed multiple false and misleading Forms 13D with the Commission, and failed to make required filings, thereby materially misrepresenting their ownership of Musicland stock. Teo made false filings to avoid triggering Musicland’s shareholders rights plan, or “poison pill,” which Teo understood would have significantly diluted his stock causing massive losses to him. Instead, Teo’s fraud enabled him to secretly purchase millions of Musicland shares well above the poison pill threshold, which he eventually sold, receiving illicit profits.
Between May 3, 2004, and January 3, 2011, the Court entered final judgments against Teo’s tippees: defendants Teren Seto Handelman (Teo’s sister-in-law), Mitch Sacks (Teo’s business partner), Phil Sacks (Teo’s tennis partner and Mitch Sacks’ father), John Reier (CFO of Teo’s companies), Larry Rosen (Teo’s friend), Rich Herron (Teo’s yachting friend), Charles Fortune, Jerrold Johnston and Mark Lauzon (Teo’s business associates), David Ross (Teo’s yacht builder), and relief defendant James Ruffolo. These defendants and relief defendant consented to the entry of judgments without admitting or denying the allegations in the Commission’s complaint. On March 15, 2010, the Court entered a partial judgment on consent against Teo to settle the Commission’s insider trading charges against him, and the Court ordered him to pay $996,782.68 in disgorgement plus prejudgment interest, enjoined him against further violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder, and barred him from serving as an officer or director of any public company. Prior to the December 21, 2011 final judgment, the Court ordered a total of $3,869,647.76 in disgorgement, prejudgment interest and civil penalties against Teo and his tippees.
In a separate action, the United States Attorney’s Office for the District of New Jersey prosecuted Teo for violations of the federal securities laws. On June 27, 2006, after a six week trial, Teo pled guilty to insider trading charges. Thereafter, on February 6, 2007, Teo was sentenced to 30 months in prison, followed by two years supervised release and ordered to pay a $1 million fine. United States v. Alfred S. Teo, 04-Cr.-583 (KSH) (D.N.J.)
Teo, age 65 and a resident of Kinnelon, New Jersey and Fisher Island, Florida, is the Chairman of several private companies which produce industrial plastics. Teo’s companies are some of the largest producers of plastic bags in North America. Teo was a director and audit committee member of two public companies: Navarre Corp. from May 1, 1998 to April 22, 2004; and Cirrus from July 21, 1998 to April 10, 2001.
The Commission expresses its appreciation to the United States Attorney’s Office for the District of New Jersey and the New York Stock Exchange for their assistance in this matter.