U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18442 / November 3, 2003
Securities and Exchange Commission v. James M. Adelt, Keith A. Cyr, John R. Gentry III, Thomas M. Laker, and Michael W. Morris, Civil Action No. 3:03-CV-2675-P (USDC/N.D.Tex.)
Securities and Exchange Commission v. AmeriCredit Corp., Civil Action No. 3:03-CV-2674-L (USDC/N.D.Tex.)
SEC SUES AMERICREDIT CORP. OFFICIALS FOR INSIDER TRADING AND SEEKS A CIVIL PENALTY FROM AMERICREDIT AS A "CONTROL PERSON"
On November 3, 2003, the Securities and Exchange Commission filed an insider trading case, in the United States District Court for the Northern District of Texas, against five present or former officials of Fort Worth-based AmeriCredit Corp., including a senior vice president, a former senior vice president, a former vice president, and two former assistant vice presidents. Those individuals have agreed to pay, in the aggregate, over $400,000 to settle the SEC's claims against them. The SEC simultaneously filed an action seeking a civil money penalty against AmeriCredit as a "control person," on the grounds that AmeriCredit failed to take appropriate steps to prevent an illegal trade by one of its employees, when the company had information showing that the employee had previously traded in the company's stock based on inside information. AmeriCredit has agreed to pay $100,000 to settle the SEC's claims against the company.
Named in the first action above are: senior vice president John R. Gentry, III, of Stanley, North Carolina; former senior vice president James M. Adelt, of Grapevine, Texas; former vice president Michael W. Morris, of Fort Worth, Texas; and former assistant vice presidents Keith A. Cyr, of Mansfield, Texas, and Thomas M. Laker, of Fort Worth, Texas. AmeriCredit, the defendant in the second action, is a New York Stock Exchange traded company in the business of purchasing finance contracts from automobile dealers and making loans directly to consumers for purchases of new and used cars.
In its complaint against the individual defendants, the SEC alleges that, in the ordinary course of their duties at AmeriCredit, the individual defendants obtained material nonpublic information about AmeriCredit's financial performance for the quarter ending December 31, 2001, and based on that information, each of them sold AmeriCredit stock between January 2 and January 10, 2002, prior to publication of the information in a January 10, 2002 AmeriCredit earnings announcement. Specifically, according to the SEC, the individual defendants learned about unfavorable collection results for the quarter ending December 31, 2001, such as the fact that the rate at which AmeriCredit charged off delinquent accounts, and the percentage of AmeriCredit accounts that were more than 60 days overdue, were substantially greater than in the same quarter a year earlier. Following the public release of that information on January 10, 2002, the price of AmeriCredit's stock declined. The SEC alleges that the AmeriCredit employees who sold shares before publication of the information fraudulently avoided losses that they would have experienced if they had sold the stock after the market reacted to the January 10 announcement; and one employee who sold the stock short before the announcement earned illegal trading profits. The SEC alleges that each individual defendant breached a duty of trust and confidence that he owed AmeriCredit's shareholders, by selling AmeriCredit shares based on the material nonpublic information. The SEC's complaint alleges that the individual AmeriCredit employees thereby violated Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder.
In its complaint against AmeriCredit, the SEC alleges that the company directly or indirectly controlled Keith Cyr, one of the employees who engaged in insider trading; that the company knew or recklessly disregarded the fact that Cyr was likely to trade in the company's stock while he was in possession of material nonpublic information; and that the company failed to take appropriate steps to prevent Cyr from trading in the company's stock while he had material nonpublic information. Specifically, the SEC claims that AmeriCredit knew about, or recklessly disregarded, a sale of AmeriCredit shares that Cyr made on January 2, 2002, through a brokerage account that AmeriCredit set up for Cyr and monitored in connection with AmeriCredit's employee stock option program. The SEC further alleges that, on January 2, AmeriCredit knew or recklessly disregarded the fact that Cyr had material nonpublic information, because the company made that information available to Cyr for his use in the ordinary course of his duties. According to the SEC, because the company knew or recklessly disregarded, on January 2, that Cyr traded in the company's stock, and also that Cyr had material nonpublic information, the company knew or recklessly disregarded the fact that Cyr was likely to trade in the company's stock, at a later date, while in possession of material nonpublic information. The SEC alleges that, on January 4, Cyr again traded in the company's stock while he was in possession of material nonpublic information, in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; and because AmeriCredit did not take appropriate steps to prevent Cyr's illegal trade on January 4, the company is liable for a civil money penalty under the "control person" provision of Section 21A of the Exchange Act.
Without admitting or denying the allegations in the complaint, each of the individual defendants has made, and the Commission has accepted, an offer of settlement in which each defendant consents: to the entry of a permanent injunction enjoining them from further violations of the above provisions of the federal securities laws; to disgorgement of their illicit profits or losses avoided, plus prejudgment interest; and to payment of a civil money penalty equal to the amount of their illicit profits or losses avoided. Pursuant to those settlement offers, Laker will disgorge $110,172 in illicit profits, plus prejudgment interest of $7,642, and pay a civil money penalty of $110,172; Gentry will disgorge $43,600 in losses avoided, plus prejudgment interest of $2,831, and a pay a civil money penalty of $43,600; Adelt will disgorge $41,763 in losses avoided, plus prejudgment interest of $2,711, and pay a civil money penalty of $41,763; Morris will disgorge $11,016 in losses avoided, plus prejudgment interest of $715, and pay a civil money penalty of $11,016; and Cyr will disgorge $10,393 in losses avoided, plus prejudgment interest of $674, and pay a civil money penalty of $10,393. Without admitting or denying the allegations in the complaint, AmeriCredit has made, and the Commission has accepted, an offer of settlement pursuant to which AmeriCredit will pay a civil money penalty of $100,000.
The SEC staff gratefully acknowledges the assistance of the New York Stock Exchange in the investigation of the facts leading to this action.
SEC Complaint in this matter (Americredit Corp.)
SEC Complaint in this matter (James M. Adelt, Keith A. Cyr, John R. Gentry III, Thomas M. Laker, and Michael W. Morris)