Litigation Release No. 20019 / February 26, 2007

Accounting and Auditing Enforcement Release No. 2565 / February 26, 2007

SEC v. Matthew E. Kopsky and Ronald W. Davis, United States District Court for the Eastern District of Missouri, Civil Action No. 4:07-cv-00379 (E.D. Mo. February 26, 2007)

SEC Charges Former Officer of Engineered Support Systems, Inc. and His Broker with Insider Trading

On February 26, 2007, the Securities and Exchange Commission filed civil injunctive actions against Ronald W. Davis, the former President of Business Development of Engineered Support Systems, Inc., and his friend and former broker, Matthew E. Kopsky, for insider trading in the securities of Engineered Support Systems. According to the complaint, in each of its first three quarterly earnings announcements of 2003, the Engineered Support Systems announced earnings that beat analysts' estimates and raised its earnings guidance above analysts' estimates, resulting in more than a 10% increase in the stock price on the day of each announcement. The complaint alleges that Davis tipped Kopsky before each announcement. Kopsky purchased Engineered Support securities for himself, family members, and/or his clients. According to the complaint, Kopsky earned an aggregate profit of $276,259, including $107,062 for himself and his wife, and $169,197 for his clients.

The complaint alleges that Davis received material, nonpublic information about the company's earnings announcements before its public release and provided this information to Kopsky. According to the complaint, Davis provided Kopsky with material, nonpublic information in an email shortly before the company's first quarter earnings announcement in 2003. Furthermore, the complaint alleges that in each quarter Kopsky purchased Engineered Support securities shortly after phone calls from Davis. In the third quarter of 2003, when the company most significantly outperformed market expectations, Kopsky purchased Engineered Support call options for the first time and invested more than 90% of his IRA in company stock, according to the complaint. The complaint alleges that by buying options just prior to Engineered Support's third quarter announcement, Kopsky and his wife earned a return of 132% on their investment.

The Commission's complaint alleges that Davis and Kopsky violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission is seeking permanent injunctions, disgorgement of ill-gotten gains, including prejudgment interest, and civil penalties from each defendant.

SEC Complaint in this matter