U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20491 / March 13, 2008
Securities and Exchange Commission v. John F. Marshall, Ph.D., et al., Civil Action No. 08-CV-2527 (S.D.N.Y., Mar. 13, 2008)
SEC Charges Vice Chairman of ISE Holdings and Business Partners With Insider Trading
Defendants Also Charged in Parallel Criminal Action
The Securities and Exchange Commission today filed an insider trading case against three individuals alleging illegal tipping and trading in advance of the April 30, 2007, announcement of Eurex Frankfurt A.G.'s $2.8 billion cash merger agreement with International Securities Exchange Holdings, Inc.
The defendants, John F. Marshall, Vice Chairman of ISE, Alan L. Tucker, of Yardley, Pa., and Mark R. Larson, of Miller Place, N.Y., were all partners in Marshall Tucker & Associates, LLC, a New York-based financial consulting partnership. The SEC's complaint alleges that Marshall received detailed and current information regarding the highly confidential ISE-Eurex merger talks, and tipped Tucker and Larson. According to the complaint, Tucker and Larson then purchased ISE securities resulting in illegal profits totaling approximately $1.1 million and $31,000, respectively.
Simultaneous with the filing of the SEC action, the U.S. Attorney's Office for the Southern District of New York announced the filing of a criminal complaint charging the three men with conspiracy to commit securities fraud.
The SEC complaint makes the following allegations.
- John F. Marshall, while serving as Vice Chairman of ISE's board, Chairman of its Audit and Finance Committee, and member of its Executive Committee, had access to information concerning ISE-Eurex merger talks and tipped Tucker and Larson.
- Tucker invested more than $1 million in ISE securities during the course of the scheme, buying 20,000 shares of ISE common stock and more than 900 ISE call option contracts, all of whose strike prices were above, and most considerably above, the contemporaneous trading prices of ISE's common stock.
- In at least five separate emails, Tucker used veiled language to communicate with Marshall, and sometimes Larson, about the unlawful trading. In these communications, Tucker described the performance of certain ISE securities purchased in his account, and discussed new plans to augment, or "leverage," this unlawful trading.
- Tucker purchased more than 700 of the ISE call option contracts that he bought during the scheme in the final four days of trading before the public announcement. The strike prices of these options were substantially out-of-the-money, in amounts ranging from $6 to $14 per contract above ISE's contemporaneous common stock prices. In addition, more than half of his purchases comprised a full 100 percent of the volume in the respective options series on the dates Tucker traded.
- For his part, Larson bought $81,000 worth - 1,700 shares - of ISE common stock in less than two months, almost doubling an ISE common stock position that had taken him over one year to accumulate and had lain dormant in his account for nearly a year. Larson took out margin loans to pay for these additional ISE purchases, which took place as Tucker was also buying ISE.
- ISE's share price soared almost 50 percent upon the April 30, 2007 announcement that Eurex and ISE had signed a definitive merger agreement. On the announcement date, the 700-plus ISE option contracts and 20,000 shares that Tucker then held increased in value by approximately $729,000 and $375,000, respectively, resulting in illegal profits of approximately $1.1 million.
The SEC's complaint alleges that each defendant violated the antifraud provisions of the Securities Exchange Act of 1934 - Section 10(b) of that Act and Rule 10b-5 thereunder. The complaint seeks permanent injunctions against future violations, disgorgement of unlawful trading profits plus prejudgment interest, civil penalties, and an officer and director bar against Marshall.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, the Options Regulatory Surveillance Authority (ORSA), and the New York Stock Exchange (NYSE).
The Commission's investigation in this matter is ongoing.