SECURITIES AND EXCHANGE COMMISSION
Litigation Release No.16991 \ May 8, 2001
SECURITIES AND EXCHANGE COMMISSION v. JORGE EDUARDO BALLESTEROS FRANCO, et al., Civil Action No. 01CV 3872 (JGK) (S.D.N.Y.)(filed May 8, 2001)
SEC SUES CHAIRMAN OF GRUPO MEXICANO DE DESARROLLO, AND 15 RELATIVES, FAMILY FRIENDS AND TRADING ENTITIES FOR MASSIVE INSIDER TRADING
DEFENDANTS MADE PROFITS OF OVER $3.7 MILLION
SETTLING DEFENDANTS TO PAY OVER $4.7 MILLION IN DISGORGEMENT AND PENALTIES
On May 8, 2001, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York, alleging that Jose Luis Ballesteros Franco, a former Director of Nalco Chemical Company, his brother, his four sons, and two friends of the Ballesteros family (all Mexican nationals), participated in massive and highly profitable insider trading prior to the June 28, 1999 public announcement that Nalco would be acquired by Suez Lyonnaise des Eaux, a French company. Jose Luis Ballesteros was the Vice-Chairman of a major Mexican construction company, Grupo Mexicano de Desarrollo, S.A. de C.V. On May 28, 2000, he was killed in an automobile accident in Mexico. His brother, Jorge E. Ballesteros, is the Chairman of Grupo Mexicano. Together, Jose and Jorge Ballesteros purchased 216,000 Nalco shares at a cost of over $8 million and made illegal profits of more than $3.2 million. Jose Luis Ballesteros' four sons purchased 17,664 Nalco shares at a cost of over $777,000 and made illegal profits of more than $150,000. One of the four sons, Jose Luis Ballesteros Gutierrez, also tipped his longtime friend, Carlos Minvielle, who then tipped his father, Eugenio Minvielle. Together, the Minvielles purchased 29,365 Nalco shares at a cost of over $1.1 million and made illegal profits of more than $400,000. All told, the defendants purchased 263,329 Nalco shares at a cost of over $9.8 million and made illegal profits of more than $3.7 million.
To carry out their fraud, the Ballesteros family used multiple offshore trusts in names other than the Ballesteros family name, trustees located in the Isle of Jersey, offshore nominee companies, and four different brokerage firms, with accounts located in the United States and Switzerland. The Minvielle family also used two foreign-based companies as the vehicles through which they purchased Nalco stock.
As alleged in the Commission's Complaint, Jose Luis Ballesteros attended a June 17, 1999 meeting of Nalco's Board of Directors where he was told that a merger with Suez was likely to be finalized within a matter of days. Shortly after the meeting adjourned, Jose Luis Ballesteros placed an order to purchase up to $300,000 of Nalco stock through an offshore Swiss account owned by his family trust. On June 21, 22, 23 and 24, 1999, he purchased an additional 54,700 Nalco shares for over $2 million through the same offshore Swiss account, and two additional Swiss accounts and made illegal profits totaling $956,337.
The Commission's Complaint also alleges that Jose Luis Ballesteros tipped his brother, Jorge Ballesteros, concerning the pending Nalco merger. Between June 22 and June 24, Jorge Ballesteros placed orders to purchase $5.7 million of Nalco stock through two separate offshore family trusts with Swiss accounts and made illegal profits of over $2.2 million.
According to the Commission's Complaint, Jose Luis Ballesteros Franco also tipped his four sons about the Nalco merger. On June 23, 24 and 25, 1999, the four sons bought 17,664 Nalco shares for more than $777,000 and made illegal profits of $152,838. Juan Pablo purchased Nalco stock through his Casford Limited account and the other three brothers all purchased Nalco stock through Jose Luis Ballesteros Gutierrez's Interconsulting Limited account.
Finally, Jose Luis Ballesteros Gutierrez tipped his longtime friend, Carlos Minvielle about Nalco. On June 24, 1999, Carlos bought 4,365 Nalco shares for $178,419 through an account in the name of Dehcot S.A. de C.V. and made illegal profits of $48,015, which he shared with his tipper, Jose Luis Ballesteros Gutierrez. Carlos then tipped his father, Eugenio Minvielle, who, on June 23, 1999, bought 25,000 Nalco shares for $931,275 through an account in the name of Parkesburg Corp. Together the Minvielles made illegal profits of $414,428.
Without admitting or denying the allegations of the Commission's Complaint, several of the defendants have consented to pay a total of $4,730,951 in disgorgement, prejudgment interest and penalties. The Estate of Jose Luis Ballesteros Franco has consented to pay disgorgement of $3,380,284, representing all the profits made by the Ballesteros family from their trading of Nalco stock, together with prejudgment interest of $364,586. Eugenio Minvielle and Parkesburg Corp. have consented to pay disgorgement of $366,413, prejudgment interest of $55,504 and a one-time civil penalty of $366,413. Carlos Minvielle and Dehcot S.A. de C.V. have consented to pay disgorgement of $48,015, prejudgment interest of $7,273 and a one-time civil penalty of $48,015. Jose Luis Ballesteros Gutierrez and Interconsulting Limited have also agreed to pay a one-time civil penalty of $58,817 on their own trading profits and those of Jose Luis's tippee, Carlos Minvielle. Alejandro Ballesteros Gutierrez has agreed to pay a one-time civil penalty of $14,778 on his trading profits. Ricardo Ballesteros Gutierrez has agreed to a one-time civil penalty of $20,853 on his trading profits. At the time he bought Nalco stock, Ricardo Ballesteros was an analyst in the Investment Banking Division at Lehman Brothers Inc. and, as a result, he has agreed to be barred from the securities industry with the right to reapply after five years. In addition, all settling defendants, and the entities through which they traded (except the Estate of Jose Luis Ballesteros Franco), have consented to the entry of a permanent injunction prohibiting them from further violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder.
Also on May 8, 2001, the United States Attorney for the Southern District of New York announced the indictments of Jorge Eduardo Ballesteros Franco and Juan Pablo Ballesteros Gutierrez for nine felony counts and three felony counts, respectively, for conspiracy to violate, and violations of, the federal securities laws. Both defendants, and the entities through which they traded (Cardinal Trust, Sagitton Limited, Gianni Trust, Gianni Enterprises Limited and Casford Limited), have also been sued by the Commission for violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. None of these defendants has agreed to settle with the Commission.
The Commission wishes to thank the United States Attorney's Office for the Southern District of New York, the Swiss Federal Office of Justice, the New York Stock Exchange and the Isle of Jersey Financial Services Commission for their cooperation and assistance in this matter.
The Commission is continuing its investigation in this matter.http://www.sec.gov/litigation/litreleases/lr16991.htm