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U.S. Securities and Exchange Commission


LITIGATION RELEASE NO. 16880 / January 31, 2001


The Securities and Exchange Commission announced today that it filed a civil injunctive action in federal court in Manhattan, charging a former investment banking associate of a prominent Wall Street firm with illegal insider trading in the securities of one of the firm's clients in June 1998.

Named in the Commission's complaint is David M. Bonrouhi, age 30, an investment banking associate at Merrill Lynch, Pierce, Fenner & Smith, Incorporated ("Merrill Lynch") from October 1, 1996 to July 15, 1998, when Merrill Lynch discharged him for the conduct alleged in the complaint.

The Commission's complaint alleges that Bonrouhi engaged in illegal insider trading by selling IWL Communications, Inc. ("IWL") stock while in possession of material, nonpublic information concerning IWL's disappointing quarterly financial performance and unfavorable developments in a prospective merger involving IWL. In March 1998, Merrill Lynch was retained by IWL to provide financial services relating to the merger. On June 19, 1998, Bonrouhi attended a meeting at Merrill Lynch at which he learned that the exchange ratio for the merger would be amended to IWL's detriment because IWL's revenue for the quarter ending June 30, 1998 would fall short of prior expectations. Less than one hour after the meeting ended, Bonrouhi sold all 600 shares of his IWL stock, despite having been warned at the meeting that the information was confidential and that Bonrouhi was prohibited from selling his IWL stock. The news was announced on the next day of trading and IWL stock dropped over 40 percent. By selling his IWL stock in advance of the announcement, Bonrouhi illegally avoided losses of $4,160.

Simultaneous with the filing of the complaint, Bonrouhi consented, without admitting or denying the allegations in the complaint, to the entry of a final judgment: (1) permanently enjoining him from committing securities fraud in violation of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5; (2) ordering him to disgorge the $4,160 in trading losses that he illegally avoided, and to pay prejudgment interest on that amount; and (3) ordering him to pay a civil penalty of $4,160.