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U.S. Securities and Exchange Commission


LITIGATION RELEASE NO. 16217 / July 22, 1999

Securities and Exchange Commission v. Arthur H. Shoemaker, Civil Action No. 99cv11568-MLW (D. Mass. filed July 22 , 1999)

The Securities and Exchange Commission announced today that it sued a former senior engineer of Galileo Corporation for insider trading in advance of a February 12, 1997 announcement that Galileo was losing its largest customer, Xerox Corporation. Galileo Corporation of Sturbridge, Massachusetts manufactures fiberoptic and electro-optic products. The announcement had a devastating effect on Galileo's stock price, causing it to decline by 63%.

In its Complaint, filed today in federal court in Massachusetts, the Commission alleges that Arthur H. Shoemaker, formerly of Southbridge, Massachusetts and at the time the director of development of Galileo's medical products group, sold 7,700 shares of Galileo on February 12, 1997 shortly after learning the nonpublic information that Xerox had terminated Galileo as a supplier. After the close of the market that day, Galileo announced the loss of the Xerox business causing the price of Galileo's stock to decrease from its February 12, 1997 closing price of $18. 625 to a February 13, 1997 closing price of $6.875. At the time Xerox's purchases of dicorotrons, Galileo's highest volume office product, accounted for 48% of Galileo's total sales revenues and a substantial amount of its profits. By trading in advance of the announcement, Shoemaker illegally avoided a loss of approximately $87,827 on his sales.

The Complaint alleges that Shoemaker, by trading on the basis of material nonpublic information, violated 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. The Complaint seeks entry of a Final Judgment of Permanent Injunction enjoining Shoemaker from future securities laws violations, requiring him to disgorge an amount equal to his losses avoided as a result of his illegal trading, prejudgment interest, and imposing civil penalties of up to three times the amount of the losses he avoided.