Litigation Release No. 18376 / September 29, 2003
Securities and Exchange Commission v. John R. Felder and Jean M. Ruhl, Civil Action No. 03-CV-7559 (S.D.N.Y.)
Commission Charges John R. Felder and Jean M. Ruhl With Insider Trading
The Securities and Exchange Commission ("Commission") announced the filing, on September 25, 2003, of a complaint in the United States District Court for the Southern District of New York, alleging insider trading in the securities of Conestoga Enterprises, Inc. ("Conestoga") by defendant John R. Felder, of Naples, Florida. Felder purchased Conestoga's stock in advance of a July 25, 2001 announcement of a merger between Conestoga and NTELOS, Inc. ("NTELOS") after receiving material, nonpublic information concerning the proposed merger from defendant Jean M. Ruhl, of Lewisburg, Pennsylvania, a member of Conestoga's Board of Directors. The complaint seeks permanent injunctions for violations of the antifraud provisions of the federal securities laws, disgorgement, civil penalties, and an officer and director bar against Ruhl. As described below, the defendants have agreed to settle this matter.
Conestoga was an integrated communications provider based in Birdsboro, Pennsylvania. Its stock was traded on the NASDAQ national market.
The Commission's complaint alleges that on the morning of July 25, 2001, Conestoga publicly announced that it had signed an agreement to merge with NTELOS. Under the terms of the agreement, Conestoga shareholders would receive approximately $40 per share in a combination of cash and stock. This merger was never consummated. In September 2001, Conestoga opted to accept a more favorable offer from another company, D&E Communications, Inc. Following the announcement, Conestoga's share price increased $5.25, or 16.5 percent, from $31.75 (at the close on July 24) to $37.
The complaint alleges that Felder knew Ruhl socially and professionally, knew that she was a member of Conestoga's Board, and spoke with her often during the time of the merger negotiations. In the months leading up to Felder's trading, he and Ruhl spoke often by telephone, including the days surrounding each Board meeting and each of Felder's purchases of Conestoga stock. During at least some of these calls, Felder sought information from Ruhl concerning whether Conestoga was seeking a merger. In breach of her fiduciary duties to Conestoga and its shareholders, Ruhl conveyed material, nonpublic information concerning the proposed merger to Felder. On six separate days between July 2 and July 18, 2001, just prior to the announcement of the merger, Felder then purchased a total of 9,200 shares of Conestoga common stock, spending almost $272,000. Although Felder did not sell his shares on July 25, 2001, he had potential profits of $68,476 from his unlawful trading.
Simultaneously with the filing of the complaint, and without admitting or denying the Commission's allegations, the defendants consented to the entry of a Final Judgment permanently enjoining them from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; ordering Felder and Ruhl to jointly and severally pay disgorgement in the amount of $68,476, together with prejudgment interest; and ordering the defendants to each pay a civil penalty in the amount of $68,476. In addition, Ruhl will be barred from acting as an officer or director of a public company.
The Commission acknowledges the assistance of NASD Regulation, Inc. in this matter.
