SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16392 / December 16, 1999
FINAL REMAINING DEFENDANTS SETTLE SEC INSIDER TRADING CASE AND AGREE TO PAY ALMOST $300,000 IN DISGORGEMENT AND CIVIL PENALTIES
Securities and Exchange Commission v. Daniel Lambert, John Pape, James Verrillo and Gerard Verrillo, Civil Action No. 98-2280-CIV-KING (S. D. Florida, filed Sept. 29, 1998).
The Securities and Exchange Commission (SEC) announced that on December 2, 1999, the United States District Court for the Southern District of Florida entered a permanent injunction enjoining James Verrillo (J. Verrillo) of Lighthouse Point, Florida, and his father, Gerard Verrillo (G. Verrillo), of Syracuse, New York from violating Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (Exchange Act). In addition, the Court ordered J. Verrillo to disgorge $220,548 in ill-gotten gains and prejudgment interest and to pay a civil penalty to the United States Treasury of $46,367. The Court ordered G. Verrillo to disgorge $16,980 in ill-gotten gains and prejudgment interest and to pay a civil penalty to the United States Treasury of $3570. Both J. Verrillo and G. Verrillo consented to the entry of the order without admitting or denying the SEC's allegations.
The Verrillos were the last remaining defendants in a lawsuit the SEC filed on September 29, 1998 alleging insider trading involving the securities of Vacation Break U.S.A. (Vacation Break), a former Ft. Lauderdale company in the time-share business. The SEC's complaint charged four individuals with having violated the federal securities laws by trading on the basis of non-public information, or having provided non-public information, in advance of a merger with The Berkley Group, Inc. (Berkley Group) that Vacation Break announced on November 27, 1996. Following news of the merger, Vacation Break's stock, which was then traded on the NASDAQ, closed at about 56% higher than its price the prior day.
The SEC's complaint alleged that defendant Daniel Lambert (Lambert), an attorney residing in the Ft. Lauderdale, Florida area, negotiated the Vacation Break/Berkley Group merger in the fall of 1996 on behalf of the Berkley Group and other related companies, all of which were controlled by Lambert's family. The SEC further alleged that beginning in October 1996, Lambert provided his friend and then law partner, defendant John Pape (Pape), a Miami area attorney, with inside information in advance of the merger announcement. The SEC alleged that Pape used that information, and approximately $74,000 that Lambert provided him, to accumulate Vacation Break stock. After the Vacation Break/Berkley Group merger announcement, Pape sold his Vacation Break stock at a profit.
The SEC's complaint also alleged that J. Verrillo, who did telemarketing work for both Vacation Break and the Berkley Group, was tipped about the proposed merger before the announcement and that he tipped his father, G. Verrillo, a retired police officer. According to the SEC's complaint, J. Verrillo was a guest in the shared Vacation Break/Berkley Group suite at Pro Player stadium for a Monday night football game on November 25, 1996. The SEC's complaint alleged that J. Verrillo was tipped that night about the impending Vacation Break/Berkley Group merger. The next morning, November 26, 1996, J. Verrillo purchased nearly $300,000 of Vacation Break stock in two brokerage accounts. The SEC also alleged that J. Verrillo tipped his father, who purchased an additional $100,000 of Vacation Break stock for his son, J. Verrillo, as well as $30,000 of the stock for himself. The SEC's complaint further alleged that after November 27, 1996, when Vacation Break and the Berkley Group announced their merger, J. Verrillo and G. Verrillo sold their stock at a profit.
On November 5, 1999, the Court entered an order permanently enjoining Lambert and Pape from violating Section 10(b) and Rule 10b-5 of the Exchange Act and ordered Pape to pay disgorgement of $67,707 plus prejudgment interest, but waived payment of all but $55,220 based upon his demonstrated inability to pay. The Court did not impose a fine against Pape because of his inability to pay. Also on that date, the Court ordered Lambert to pay a civil penalty of $67,707 and to pay the disgorgement and prejudgment interest (totaling $22,157) which Pape (Lambert's alleged tippee) was relieved from paying pursuant to the Court ordered waiver. Both Lambert and Pape consented to the entry of the order without admitting or denying the allegations of the SEC's complaint.
The SEC's complaint charged Lambert, Pape, J. Verrillo, and G. Verrillo with having violated Section 10(b) of the Exchange Act (15 U.S.C. § 78j(b)) and Rule 10b-5 thereunder (17 C.F.R. §240.10b-5). In its complaint, the SEC sought permanent injunctions against future violations of Section 10(b) and Rule 10b-5, disgorgement of ill-gotten gains (with prejudgment interest), and civil penalties.
The SEC filed a related complaint against Mitchell Cairo (Cairo), a doctor in the Washington, D.C. area, on June 7, 1999. (SEC v. Cairo, Case No. 99-6698-WPB). In that complaint, the SEC alleged that on or about October 28, 1996, Cairo misappropriated from a Vacation Break employee material non-public information about Vacation Break's proposed transaction with the Berkley Group. The SEC alleged that Cairo purchased 15,000 shares of Vacation Break stock while in possession of the inside information and sold it at a profit after the November 27, 1996 public announcement regarding Vacation Break's agreement with the Berkley Group. Simultaneous with the filing of the SEC's complaint, Cairo consented to the entry of an injunction and order of disgorgement and civil penalties without admitting or denying the allegations of the complaint. The Court entered an order on June 7, 1999 enjoining Cairo from violating Section 10(b) and Rule 10b-5 of the Exchange Act, and ordering Cairo to pay disgorgement of $120,230 (including prejudgment interest) and civil penalties of $105,982.
The SEC thanks the National Association of Securities Dealers, Inc. for the assistance it provided in connection with the investigation leading to this matter.
See also LR-15924 (Oct. 2, 1998); LR-16177 (June 7, 1999); LR-16359 (Nov. 17, 1999)http://www.sec.gov/litigation/litreleases/lr16392.htm