United States Securities and Exchange Commission
Litigation Release No. 17331 / January 23, 2002
Securities and Exchange Commission v. Stephen J. Cowley, 00 Civ. 9045 (JGK) (S.D.N.Y.)
British Subject Ordered to Pay $265,644 in Insider Trading Case
The Securities and Exchange Commission ("Commission") today announced that on January 16, 2002, the Honorable John G. Koeltl, United States District Judge for the Southern District of New York, entered a final judgment of permanent injunction and other relief against defendant Stephen J. Cowley, a British subject and resident. The judgment settles the Commission's claims against Cowley in a civil action filed by the Commission on November 28, 2000, which alleged that Cowley violated the antifraud provisions of the federal securities laws when he engaged in insider trading in the securities of 4Front Technologies, Inc. in advance of the August 3, 2000 public announcement that NCR, Inc. would acquire 4Front. At the time the Complaint was filed, the Commission also sought and obtained a freeze of Cowley's assets located in the U.S. The final judgment permanently enjoins Cowley from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and orders Cowley to pay disgorgement in the amount of $127,288, pre-judgment interest in the amount of $11,068, and a civil penalty of $127,288, for a total payment of $265,644. Cowley consented to entry of the final judgment without admitting or denying the allegations in the Complaint.
As alleged in the Complaint, in the three weeks immediately preceding the 4Front/NCR merger announcement, Cowley purchased 8,000 shares of 4Front common stock and 460 4Front call options (August $12.50 series) at a total cost of over $250,000, through a U.S. brokerage account he maintained at Salomon Smith Barney. Cowley's 4Front purchases began shortly after 4Front and NCR began merger negotiations. His options purchases aroused suspicion because he had never purchased options before, and was essentially the only purchaser of that particular series of 4Front call options at the time. Cowley also liquidated a substantial portion of his Salomon portfolio in order to fund his 4Front securities purchases. According to the Complaint, taped recordings of conversations between Cowley and his broker revealed Cowley's knowledge of very specific details concerning the ultimately-announced merger, including the price of the proposed transaction and the timing of the contemplated agreement and announcement.
On August 3, 2000, 4Front and NCR jointly announced their agreement to merge. Cowley immediately sold all his 4Front stock and call options, realizing illicit trading profits of $127,288.
See also: L.R. 16812 (November 29, 2000)