SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17356 / February 7, 2002
SECURITIES AND EXCHANGE COMMISSION v. PABLO ESCANDON CUSI AND LORI LTD., Civil Action No. 02CV 0971 (S.D.N.Y.)(filed February 7, 2002)
SEC SUES PABLO ESCANDON AND LORI LTD. FOR INSIDER TRADING
DEFENDANTS TO PAY OVER $1.7 MILLION IN
DISGORGEMENT AND PENALTIES
On February 7, 2002, 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 Pablo Escandon Cusi ("Escandon"), a Mexican businessman, and Lori Ltd., a company owned by the Escandon family, engaged in insider trading prior to the June 28, 1999 public announcement that Nalco Chemical Company would be acquired by Suez Lyonnaise des Eaux, a French company.
Escandon is the Chairman and CEO of Nadro S.A. de C.V., a Mexican public company, and that country's second largest pharmaceutical distributor. None of the alleged conduct involves Nadro S.A. de C.V. Escandon is also a director of several other prominent Mexican public companies. Lori Ltd. is a company incorporated in the British Virgin Islands.
The Commission's Complaint alleges that Escandon was tipped by Jose Luis Ballesteros, a director of Nalco who has since died. The Complaint specifically alleges that, in violation of his fiduciary duties to Nalco, Jose Luis Ballesteros provided Escandon with material, nonpublic information about the proposed acquisition by Suez. In response to this tip, Escandon fraudulently directed the purchase of 50,000 shares of Nalco stock through a brokerage account in the name of Lori Ltd. On June 21 and 22, 1999, the Lori Ltd. account purchased those shares at a cost of $1,810,775.
A week later, on June 28, 1999, Nalco and Suez jointly announced that they had signed a definitive merger agreement, calling for Suez to pay $53.00 per Nalco share, representing a $10.50 premium over the June 25 closing price of $42.50. The Complaint alleges that on August 18, 1999, at the direction of Escandon, the Lori Ltd. account sold 10,000 Nalco shares at $51.75 per share. Also at Escandon's direction, the remaining 40,000 shares were tendered to Suez at a price of $53.00 per share. As a result of these transactions, Escandon and Lori Ltd. realized illegal profits of $776,725.
Without admitting or denying the allegations of the Commission's Complaint, Escandon and Lori Ltd. have consented to pay a total of $1,716,546.23, representing disgorgement of $776,725, prejudgment interest in the amount of $163,096.23, and a penalty of $776,725. In addition, Escandon and Lori Ltd. 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.
In a separate action filed on May 8, 2001, the Commission filed a complaint alleging that Jose Luis Ballesteros also purchased Nalco stock and tipped others. All told, defendants named in that action purchased 263,329 Nalco shares at a cost of over $9.8 million and made illegal profits of more than $3.7 million. SEC v. Jorge Eduardo Ballesteros Franco, et al., Civil Action No. 01CV 3872 (JGK) (S.D.N.Y.) (filed May 8, 2001); SEC Press Release No. 2001-43 (May 8, 2001).
The Commission wishes to thank the United States Attorney's Office for the Southern District of New York, the U.S. Customs Service, 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.