U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22439 / August 8, 2012
SEC v. R. Brooke Dunn and Nicholas P. Howey, Civil Action No. 09-cv-2213 (D. Nev.)
SEC OBTAINS BAR AGAINST FORMER EXECUTIVE FROM SERVING AS AN OFFICER OR DIRECTOR OF A PUBLIC COMPANY DUE TO ILLEGAL INSIDER TRADING
On July 30, 2012 the Honorable Judge James C. Mahan of the United States District Court for the District of Nevada barred R. Brooke Dunn, a former executive at Shuffle Master, Inc., from serving as an officer or a director of a public company for five years. The SEC filed a Complaint against Dunn and Nicholas P. Howey on November 19, 2009 for illegal insider trading in Shuffle Master stock and options prior to an announcement of disappointing financial results by Shuffle Master. Judge Mahan ordered that the bar be imposed from the date the Complaint was filed.
The SEC’s Complaint alleged that, on February 26, 2007, after he first learned that Shuffle Master would announce disappointing preliminary financial results, Dunn called Howey and provided him with material nonpublic information relating to Shuffle Master’s anticipated announcement. Howey then immediately sold all of his previously-purchased Shuffle Master stock and calls and purchased Shuffle Master puts. The next day, after Shuffle Master announced its disappointing financial news, Howey sold all of the Shuffle Master puts he purchased the previous day, thereby profiting and avoiding losses. In the order imposing a bar, Judge Mahan found that “Mr. Dunn abused his fiduciary position, and violated his employment agreement and the company’s code of conduct by sharing confidential information with Mr. Howey.” The Court further found that “Mr. Dunn was aware that sharing information with Mr. Howey was improper but chose to ignore company policy when he divulged confidential information.”
Dunn and Howey previously settled the SEC’s lawsuit (other than the officer and director bar issue, which was submitted to the Court) by agreeing to pay a civil penalty in the amount of $181,594 each, without admitting or denying liability. Howey also agreed to pay an additional $181,594 in disgorgement plus $30,403 in prejudgment interest. Dunn and Howey both agreed to orders permanently enjoining them from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.