Edwin H. Nordlinger (EN-6258)
Attorney for Plaintiff
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission ("Commission"), for its Complaint against defendants Harvey R. Dobrow ("Harvey Dobrow") and Lawrence M. Dobrow ("Lawrence Dobrow"), alleges as follows:
1. This action involves illegal insider trading by Harvey Dobrow, who bought stock in H.D. Vest, Inc. ("H.D. Vest") after learning an inside tip about an upcoming takeover of H.D. Vest, and by his son, Lawrence Dobrow, who passed on that illegal tip. Lawrence Dobrow learned confidential information about an upcoming merger between H.D. Vest and Wells Fargo & Co. ("Wells Fargo") through his job as a writer at H.D. Vest's public relations firm, Ogilvy Public Relations Worldwide ("Ogilvy"). On March 22, 2001, after Lawrence Dobrow had told Harvey Dobrow confidential information about the anticipated takeover, Harvey Dobrow hurriedly transferred $13,000 into his almost depleted brokerage account and bought 2,000 shares of H.D. Vest stock at prices between $6.00 and $7.00 per share. On March 23, 2001, after a press release announced the takeover, H.D. Vest stock skyrocketed to a closing price of $20.38. This yielded $27,436.12 in illegal potential profits for Harvey Dobrow.
2. By virtue of the conduct alleged herein, Harvey Dobrow and Lawrence Dobrow have engaged, directly or indirectly, in transactions, acts, practices, or courses of business that constitute violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Accordingly, the Commission seeks from Harvey Dobrow disgorgement of all ill-gotten gains plus prejudgment interest thereon, and from both Harvey Dobrow and Lawrence Dobrow civil penalties and permanent injunctions against further violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
JURISDICTION AND VENUE
3. The Commission brings this action pursuant to Sections 21(d) and 21A of the Exchange Act, 15 U.S.C. §§ 78u(d), 78u-1.
4. This Court has jurisdiction over this action pursuant to Sections 21(d), 21A, and 27 of the Exchange Act, 15 U.S.C. §§ 78u(d), 78u-1, 78aa.
5. Harvey Dobrow and Lawrence Dobrow, directly and indirectly, singly or in concert, made use of the means or instrumentalities of interstate commerce, or of the mails, or of any facility of any national securities exchange, in connection with the transactions, acts, practices, and courses of business alleged herein.
6. Harvey Dobrow, 60, of Franklin Lake, New Jersey, is a medical doctor who operates a private practice in Fairlawn, New Jersey.
7. Lawrence Dobrow, 31, of New York, New York, is the son of Harvey Dobrow. He is currently employed as an editorial director at Ruder Finn, a public relations firm. From October 2000 until April 2001, Lawrence Dobrow was employed as an account director in Ogilvy's New York office.
8. H.D. Vest is a financial services company, principally headquartered in Dallas, Texas. Before H.D. Vest was taken over by Wells Fargo, H.D. Vest's securities were registered with the Commission and reported on NASDAQ's National Market System. H.D. Vest now operates as a wholly owned subsidiary of Wells Fargo.
9. Wells Fargo, headquartered in San Francisco, California, is a diversified financial services company organized as a bank holding and financial holding company. Wells Fargo's securities are registered with the Commission and reported on the New York Stock Exchange.
10. Ogilvy is an international public relations firm headquartered in New York, New York.
H.D. Vest Negotiates With, And Is Acquired By, Wells Fargo
11. In July 2000, H.D. Vest retained an investment bank for the purpose of selling itself to another company. On October 18, 2000, H.D. Vest received non-binding indications of interest from several companies that were interested in acquiring H.D. Vest. In early February 2001, H.D. Vest entered into exclusive negotiations with Wells Fargo. Between early February 2001 and early March 2001, Wells Fargo conducted extensive due diligence on H.D. Vest's business and operations.
12. On March 22, 2001, after the successful conclusion of due diligence, Wells Fargo and H.D. Vest completed a definitive merger agreement whereby Wells Fargo would acquire all of H.D. Vest common stock for $21.03 per share. On or about March 22, 2001, H.D. Vest's and Wells Fargo's boards of directors approved and executed the merger agreement. Before the stock market opened on March 23, 2001, H.D. Vest issued a press release announcing the agreement (the "March 23 Announcement").
Lawrence Dobrow Learns Material Nonpublic Information
13. On or about June 1, 2000, H.D. Vest retained Ogilvy to develop marketing strategies for H.D. Vest's products. The contract between H.D. Vest and Ogilvy created in Ogilvy a duty of confidentiality to H.D. Vest, under which Ogilvy and its employees would not improperly reveal confidential information about H.D. Vest and its businesses to unauthorized persons. On or about December 13, 2000, H.D. Vest assigned to Ogilvy responsibility for managing public and investor relations in connection with the possible sale of H.D. Vest to another company. Ogilvy continued to perform these public relations duties for H.D. Vest after it was established that the company acquiring H.D. Vest would be Wells Fargo, and until at least March 23, 2001.
14. On or about October 2, 2000, Lawrence Dobrow began working as an account director at Ogilvy. On or about October 2, 2000, in conjunction with the commencement of his employment by Ogilvy, Lawrence Dobrow signed a confidentiality agreement under which he agreed he would not improperly reveal confidential information about Ogilvy or its clients to unauthorized persons. Lawrence Dobrow worked on Ogilvy's H.D. Vest account between at least December 13, 2000 and March 23, 2001. His duties included drafting and editing documents concerning H.D. Vest that were intended for public dissemination. Between at least December 13, 2000 and March 23, 2001, Lawrence Dobrow was an H.D. Vest "temporary insider" who owed a duty of trust and confidence to Ogilvy's client H.D. Vest, and to H.D. Vest's shareholders.
15. Between at least December 13, 2000 and March 23, 2001, Lawrence Dobrow attended weekly staff meetings with other Ogilvy employees working on the H.D. Vest account. In these meetings, Lawrence Dobrow and the other Ogilvy employees were informed of the ongoing negotiations regarding the possible acquisition of H.D. Vest. This information was nonpublic and confidential.
16. Within a few days of the March 23 Announcement, Lawrence Dobrow and other Ogilvy employees working on the H.D. Vest account were "put on prep" status, Ogilvy's standard procedure when a public relations offensive was imminent. Prior to the March 23 Announcement, Lawrence Dobrow drafted and edited documents concerning Wells Fargo's impending acquisition of H.D. Vest.
Lawrence Dobrow Tips Harvey Dobrow, Who Then Purchases H.D. Vest Stock
17. On about March 22, 2001, Lawrence Dobrow told Harvey Dobrow that Wells Fargo would soon acquire H.D. Vest. That morning, Lawrence Dobrow made a one-minute call to his father at 11:44 a.m. Harvey Dobrow made a return call to his son's office at 12:05 p.m., and the two spoke for eight minutes. By passing this material nonpublic information to his father during these telephone calls, Lawrence Dobrow knowingly or recklessly breached his fiduciary duty, as an H.D. Vest temporary insider, to H.D. Vest and its shareholders. He did so in order to bestow upon Harvey Dobrow a gift of illegal profits, knowing or having reason to know that his father would buy H.D. Vest stock upon receipt of the nonpublic information. In testimony before the Commission's staff on January 29, 2002, Lawrence Dobrow denied telling Harvey Dobrow anything about the H.D. Vest takeover, or any other material nonpublic information about H.D. Vest, prior to March 23, 2001.
18. On March 22, 2001, while aware of material nonpublic information concerning Wells Fargo's impending acquisition of H.D. Vest, Harvey Dobrow purchased 2,000 shares of H.D. Vest common stock in his own name at various prices between $6.00 and $7.00 per share, for a total of $13,313.88. To accomplish this, at 1:46 p.m. on March 22, 2001, Harvey Dobrow wired $13,000 into his brokerage account, which had contained only $482 in cash. Harvey Dobrow's purchases of H.D. Vest took place less than twenty minutes before the markets closed at 4:00 p.m. At the time he purchased these 2,000 shares of H.D. Vest common stock, Harvey Dobrow knew or recklessly disregarded the fact that Lawrence Dobrow had improperly disclosed material nonpublic information about Wells Fargo's impending acquisition of H.D. Vest to him in breach of a fiduciary or similar duty of trust and confidence to H.D. Vest. In testimony before the Commission's staff on January 9, 2002, Harvey Dobrow denied being in possession of any material nonpublic information about H.D. Vest, including any information about the impending H.D. Vest takeover, from Lawrence Dobrow or any other source, when he purchased 2,000 shares of H.D. Vest stock on March 22, 2001.
19. On March 22, 2001, the day Harvey Dobrow purchased H.D. Vest stock, the price of H.D. Vest's common stock closed at $7.00. On March 23, 2001, after the news of Wells Fargo's acquisition of H.D. Vest was made public by the March 23 Announcement, the price of H.D. Vest's common stock closed at $20.375 per share, an increase of more than 190% over the previous day's closing price.
CLAIM FOR RELIEF
Violations of Section 10(b) of the Exchange Act,
20. The Commission realleges and incorporates by reference each and every allegation contained in Paragraphs 1 through 19, above.
21. By reason of the foregoing, Harvey Dobrow and Lawrence Dobrow, singly or in concert, directly or indirectly, violated, and unless enjoined will again violate, Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.
WHEREFORE, Plaintiff respectfully requests a Final Judgment:
A. Permanently enjoining Harvey Dobrow and Lawrence Dobrow, their agents, servants, employees, and attorneys, and all persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, and each of them, from future violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5;
B. Ordering Harvey Dobrow to disgorge the ill-gotten gains he derived from the purchase of H.D. Vest securities in violation of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, and to pay prejudgment interest thereon;
C. Ordering Harvey Dobrow and Lawrence Dobrow to pay civil monetary penalties pursuant to Section 21A(a) of the Exchange Act, 15 U.S.C. § 78u-1(a); and
D. Granting such other and further relief as this Court shall deem just and proper.
Dated: New York, New York