SEC Obtains $3 Million Settlement in Insider Trading Action

Litigation Release No. 24690 / December 12, 2019

Securities and Exchange Commission v. John Special, Defendant, and Michael Murphy, Relief Defendant, No. 5:19-cv-1152 (W.D. Okla. filed December 12, 2019)

Securities and Exchange Commission v. John Kenneth Davidson, No. 5:19-cv-1153 (W.D. Okla. filed December 12, 2019)

The Securities and Exchange Commission today announced settled insider trading charges against two Oklahoma oil and gas executives who engaged in insider trading in a medical device company and generated more than $1.5 million in illicit profit.

The SEC's complaints, filed in the U.S. District Court for the Western District of Oklahoma, allege that Oklahoma oil and gas executive John Kenneth Davidson learned of a potential merger involving medical device company Covidien PLC from his personal friend and neighbor, a member of Covidien's board of directors. According to the complaint, Davidson ignored a warning from the director that he should not trade on this information and purchased Covidien shares. The SEC alleges that Davidson then entrusted his friend and fellow oil and gas executive, John Special, with this information with the expectation that Special would keep it confidential and not use it to trade. Instead, according to the complaint, Special purchased Covidien stock and options ahead of the merger being announced to the public, both in accounts that he controlled and in the account of a close friend.

On the evening of Sunday, June 15, 2014, Covidien and Medtronic PLC issued a press release announcing that Medtronic would acquire Covidien at a price of approximately $93.22 per share, a 29% premium above the current market price. The following morning, Special liquidated all of his and his friend's Covidien holdings, realizing $1.182 million in illicit profits in the accounts he controlled and more than $359,000 in his friend's account. Davidson's insider trading generated $19,212 in illicit gains.

Without admitting or denying the allegations in the complaints, Special and Davidson consented to final judgments permanently enjoining each of them from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Special agreed to pay nearly $3 million in financial relief: $1,182,472 in disgorgement, $231,782 in prejudgment interest, and a $1,542,242 civil penalty. Davidson agreed to pay $19,212 in disgorgement, $3,822 in prejudgment interest, and a $19,212 civil penalty. The SEC also named as a relief defendant Special's friend, Michael Murphy, who consented to a final judgment ordering him to disgorge $359,770, representing profits gained as a result of the trading Special conducted in Murphy's account.

The settlements are subject to court approval.

The investigation was conducted by Matt Reilly, Michael Brennan, and Daniel Maher of the SEC's Home Office, and Patrick McCluskey and David Makol of the Market Abuse Unit. This matter was supervised by Associate Directors Antonia Chion and Carolyn Welshhans, and Chief of the Market Abuse Unit Joseph Sansone. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.