Litigation Release No. 17972 / February 6, 2003
SECURITIES AND EXCHANGE COMMISSION v. LINDA A. WATSON AND SCOTT WATSON, Civil Action No. CV-03-BE-0270-S (N.D. Ala.) (filed February 6, 2003)
SEC SUES SCOTT AND LINDA WATSON FOR INSIDER TRADING
On February 6, 2003, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Northern District of Alabama alleging that Linda A. Watson and her former husband, Scott Watson ("the Watsons"), who together formerly ran The Watson Group Inc., a Birmingham, Alabama executive recruitment firm, engaged in insider trading before the August 21, 2000 public announcement that Clearnet Communications, Inc. ("Clearnet") would be acquired by the Telus Corporation ("Telus").
The Commission's Complaint alleges that, in August 2000, the Watsons went on a family vacation with relatives. According to the Complaint, on August 10, 2000, these relatives told the Watsons about an impending, non-public, friendly tender offer by Telus for the stock of Clearnet. The Complaint alleges that the relatives disclosed the information to the Watsons in the context of confiding their anxiety about its effect on the job of one of the relatives as a Telus executive. The Complaint further alleges that on August 11, the very next day, while still on vacation, Linda Watson purchased 3,300 shares of Clearnet. On August 16, 2000, Linda Watson opened a margin account and bought an additional 3,300 shares of Clearnet. The trades of August 11 and 16 were made at A.G. Edwards and Sons, Inc. On August 17, Linda Watson opened a new trading account at Merrill Lynch and purchased 20 Clearnet September 30 call options. This was the first time the Watsons had ever purchased options. On August 18, 2000, Linda Watson bought another 3,400 shares of Clearnet stock at Merrill Lynch.
The Complaint alleges that Linda Watson acted on behalf of herself and her husband in making all the foregoing trades. While the accounts were held solely in Linda Watson's name, the Watsons considered all accounts to be joint and shared equally in any profits or losses of any trades made in the accounts. In total, between August 11 and August 21, 2000, the Watsons bought 10,000 shares of Clearnet and 20 Clearnet September 30 call options. On August 21, 2000, the day of the public announcement, the Watsons sold all their positions and realized illegal profits of $159,193.75.
The Commission is seeking permanent injunctions against the Watsons from violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3(a) thereunder, as well as disgorgement of the Watsons' illegal profits, prejudgment interest, and civil penalties.
