U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22423 / July 25, 2012
Securities and Exchange Commission v. Ladislav “Larry” Schvacho, Civil Action No. 1:12-cv-2557-WFD (N.D. Ga.)
SEC CHARGES CLOSE FRIEND OF STAFFING COMPANY CEO WITH INSIDER TRADING AROUND ACQUISITION
On July 24, 2012, the Securities and Exchange Commission charged the close friend of a CEO with insider trading in the stock of a Houston-based employment services company by exploiting confidential information he learned while they were spending time together.
The SEC alleges that Ladislav “Larry” Schvacho, who lived in Georgia at the time of his illegal trading, made approximately $511,000 in illicit profits by using inside information to trade around the acquisition of Comsys IT Partners Inc. by another staffing company. Schvacho gleaned nonpublic information while the Comsys CEO called other Comsys executives to discuss the acquisition and through confidential, merger-related documents to which Schvacho had access.
According to the SEC’s complaint filed in U.S. District Court for the Northern District of Georgia, Schvacho first met Larry L. Enterline when they worked for the same company in the 1970s. Enterline went on to become the Comsys CEO in 2006. The two maintained their close friendship even after Enterline moved to Houston to run Comsys, speaking frequently on the phone and maintaining a longstanding tradition of Friday evening dinner and drinks when Enterline visited Atlanta, where he still had a home. The two often shared confidential information with one another.
The SEC alleges that Schvacho purchased approximately 72,000 shares of Comsys stock in the weeks leading up to a public announcement on Feb. 2, 2010, that Comsys was to be acquired by Manpower Inc. Given their close relationship and long history of sharing confidences, Enterline made no significant effort to shield information about the impending acquisition from Schvacho. Rather, Enterline reasonably expected that Schvacho would refrain from disclosing or otherwise misusing the confidential information. For example, during one of their Friday evening dinners at a restaurant in Atlanta on Nov. 6, 2009, Enterline discussed the potential acquisition in Schvacho’s presence during phone conversations with one or more Comsys senior executives. On the very next business day (November 9), Schvacho began purchasing Comsys stock relying on the material, non-public information he learned.
The SEC further alleges that Schvacho learned nonpublic information between December 11 and December 14 while he and Enterline vacationed together in Florida. Enterline again discussed the possible acquisition in Schvacho’s presence during a phone conversation with another Comsys senior executive. During that vacation, Schvacho also had access to Enterline’s merger-related documents. Just days later, Schvacho bought additional Comsys stock. Later, on December 19, Enterline again discussed the impending acquisition in Schvacho’s presence during a phone conversation after Schvacho picked him up from the airport. On the next business day, Schvacho purchased additional Comsys shares.
According to the SEC’s complaint, on or about January 20, Schvacho converted his 401(k) account to create a self-directed account so that he could buy even more Comsys shares based on material, nonpublic information learned about the deal. In order to purchase his large position in Comsys stock, Schvacho undertook other, various unusual steps including using all available cash in his brokerage accounts to purchase Comsys shares. The Comsys stock price increased approximately 31 percent following the public announcement on February 2. Schvacho immediately sold half of his Comsys shares after the announcement was made.
As a result of the conduct alleged in the complaint, the SEC alleges that Schvacho violated Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules10b-5 and 14e-3 thereunder. The SEC seeks permanent injunctive relief, disgorgement of ill-gotten gains, plus pre-judgment interest, and civil penalties.
The Commission thanks the Financial Industry Regulatory Authority (FINRA) for its assistance in this matter.