U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18429 / October 28, 2003
SEC v. Guillermo Garcia Simon, V. Arana Simon and A. Garcia Simon (United States District Court for the District of Massachusetts, Civil Action No. 03-12079-PBS).
SEC BRINGS EMERGENCY ACTION AGAINST FORMER FLEETBOSTON EMPLOYEE FOR INSIDER TRADING
The Commission announced today that on October 27, 2003 it obtained an ex parte temporary restraining order and asset freeze against a former FleetBoston employee and his relatives in connection with insider trading in securities of FleetBoston Financial Corporation. According to the Commission's complaint, the defendants bought FleetBoston securities late on Friday, October 24, just prior to the Monday, October 27 announcement of Fleet's acquisition by Bank of America Corporation. The Commission's complaint alleges that the purchasers engaged in illegal insider trading and, without the freeze, would have realized profits of at least $500,000, and potentially more than $1 million.
According to the SEC's court pleadings filed on October 27, Guillermo Garcia Simon, a former FleetBoston employee at the bank's Buenos Aires office, together with his wife Victoria Arana Simon and his brother Andres Garcia Simon, purchased 1100 Fleet call options during the last hours of trading on Friday, October 24 at a cost of about $11,000. The complaint alleges that defendants' October 24 options purchase represented over 50% of the total trading volume in this series of call options that day. The call options entitled the purchasers to buy Fleet stock for $35 per share. At the time, Fleet stock was trading at about $31 per share. The acquisition price of $45 per share was announced before the market opened on Monday, October 27. During the day on October 27 Fleet's stock price rose to $39.66 by 1 p.m., a 24% increase, with the call options increasing in value by over $500,000, and the value of the underlying stock increasing by over $864,000.
The complaint alleges that the defendants traded while in possession of material, nonpublic information about FleetBoston's merger with Bank of America in violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5. The Commission seeks permanent injunctive relief, the disgorgement of all illegal profits, and the imposition of civil monetary penalties.
The Hon. Nancy Gertner of the United States District Court for the District of Massachusetts granted the Commission's emergency request for a temporary restraining order freezing the traders' account and prohibiting them from transferring or disposing of the securities or any trading proceeds. The Commission obtained the order before the option transaction was concluded and as a result, was able to freeze the account before any profits could be removed. In addition, the court's order requires the defendants to provide account information and prohibits the defendants from destroying documents.
The Commission acknowledges the assistance of the International Securities Exchange and the American Stock Exchange in this matter.