SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16314 / September 29, 1999
SECURITIES AND EXCHANGE COMMISSION v. JEFFREY P. EHRLICH, MICHAEL E. EHRLICH, HOWARD S. GROSSMAN, JOSEPH C. PALERMO and ANTHONY P. VASSALLO, Civil Action No. 99 CV 10067 (S.D.N.Y.) (filed September 28, 1999)
SEC Sues Jeffrey P. Ehrlich, Michael E. Ehrlich, Howard S. Grossman, Joseph C. Palermo and Anthony P. Vassallo for Insider Trading
On September 28, 1999, the Commission filed a complaint in the United States District Court for the Southern District of New York against Jeffrey P. Ehrlich, Michael E. Ehrlich, Howard S. Grossman, Joseph C. Palermo and Anthony P. Vassallo, alleging insider trading in the securities of Edison Brothers Stores Corporation ("Edison Brothers") prior to a negative news announcement by Edison Brothers on August 29, 1995.
The Commission's complaint alleges that, on or about August 17, 1995, on a confidential basis, Edison Brothers approached CIT/Business Credit to help restructure its debt. The complaint further alleges that, several days later, on August 21, 1995, Anthony P. Vassallo, then an Assistant Vice President and loan officer at The CIT Group/Business Credit, Inc., in violation of his fiduciary duty to his employer, tipped his long-time friend, Jeffrey P. Ehrlich, about Edison Brothers' deteriorating financial condition. According to the complaint, immediately after Vassallo's illegal tip, Jeffrey Ehrlich purchased short-term, out-of-the-money Edison Brothers put options, betting that the price of Edison Brothers stock would decrease significantly and quickly. The complaint alleges that Jeffrey Ehrlich then passed the information on to his brother, Michael P. Ehrlich, who also bought short-term, out-of-the-money Edison Brothers put options. That same day, either or both of the Ehrlichs allegedly tipped their mutual friend, Joseph C. Palermo. Palermo allegedly then purchased Edison Brothers put options and tipped his brother. The complaint also alleges that Michael Ehrlich tipped Howard S. Grossman, who sold Edison Brothers stock short. After Edison Brothers issued a series of negative announcements on August 29, 1995, Edison Brothers common stock declined by more than 40%. The traders then liquidated their positions, realizing total profits of approximately $124,000. The complaint alleges that, shortly thereafter, Jeffrey Ehrlich gave $8,000 of his trading profits to Vassallo.
The Commission's complaint seeks injunctions against Jeffrey Ehrlich, Michael Ehrlich, Howard Grossman, Joseph Palermo and Anthony Vassallo for violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and against Grossman for violating Section 17(a) of the Securities Act of 1933. The complaint seeks disgorgement of all profits earned, including prejudgment interest, and civil penalties. Simultaneous with the filing of the complaint, without admitting or denying the allegations of the complaint, Jeffrey Ehrlich, Michael Ehrlich and Vassallo consented to the entry of Final Judgments permanently enjoining them from violating Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder. The Final Judgment as to Michael Ehrlich waives payment of disgorgement and does not impose a civil penalty based on his demonstrated inability to pay. Jeffrey Ehrlich consented to pay disgorgement of $40,000, with additional amounts in disgorgement and penalty not assessed based on his inability to pay. Vassallo consented to pay $8,000 in disgorgement, $2,979.80 in prejudgment interest and an $8,000 penalty for a total amount of $18,979.80.http://www.sec.gov/litigation/litreleases/lr16314.htm