SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17150 / September 25, 2001
SEC v. Devin A. Danehy, (U.S.D.C. W.D. Kentucky, Civil Action No. 3:01CV555, filed September 21, 2001)
The Securities and Exchange Commission ("Commission") announced that on September 25, 2001, the Honorable John G. Heyburn II, U.S. District Judge for the Western District of Kentucky, entered a Final Judgment and Order of Permanent Injunction and Other Relief ("Order") in an insider trading case against Devin A. Danehy ("Danehy"), a former resident of Louisville, Kentucky at the time of the conduct and a current resident of Orlando, Florida.
The Commission's Complaint alleges the following. From July 22, 1998 through October 9, 1998, Danehy engaged in insider trading in the securities of Tricon Global Restaurants, Inc. ("Tricon"), a company headquartered in Louisville, Kentucky, and comprised of four operating companies: KFC, Pizza Hut, Taco Bell and Tricon International. Danehy was a manager in the Business Analysis Group at Tricon. In this capacity, Danehy participated in the preparation of confidential internal Tricon documents reporting Tricon's financial results and forecasts of its financial results for the third and fourth quarter of 1998. These documents were prepared for Tricon's senior management and board of directors. Danehy knew that Tricon's earnings announcements would be based on the information contained in these internal reports. Danehy purchased 210 Tricon call options on July 22, August 17 and 18, and October 8 and 9, while in possession of this information.
The Commission also alleges the following. After Tricon made significant, positive public announcements about its financial results on August 19, 1998, and October 15, 1998, its stock price rose. The August 19 press release stated that Tricon expected "operating profit to be up 30 percent, operating EPS to be up over 70 percent while [fully diluted] EPS, which includes facility action net gains, should be up over 50 percent." The October 15 announcement stated that Tricon's earnings for the third quarter were, in fact, "up 60 percent to $128 million, or $0.82 per diluted share - beating expectations." Danehy sold his options after these earnings announcements were made, and gained a profit of $110,301.
The Commission further alleges that Danehy was subject to Tricon's insider trading policies. The insider trading policies prohibited Danehy from purchasing Tricon securities while in possession of material, non-public information, and also banned the purchase of Tricon options.
Without admitting or denying the allegations in the Commission's Complaint, Danehy consented to entry of the Order, which permanently enjoins him from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and orders him to disgorge $110,301 in trading profits, including an additional $24,026 in prejudgment interest.
The SEC acknowledges the assistance of the Chicago Board Options Exchange in this matter.