U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19262 / June 9, 2005
SEC V. ZOMAX, INC. ET AL, (United States District Court for the District of Minnesota No. 05-1128)
SEC FILES INSIDER TRADING CHARGES AGAINST TWO OF ZOMAX INC.'S FORMER OFFICERS AND FILES SETTLED FINANCIAL REPORTING CHARGES AGAINST ZOMAX, INC. AND TWO OF ITS OFFICERS
The Securities and Exchange Commission announced that it filed a civil injunctive action in the United States District Court for Minnesota alleging that James T. Anderson (Anderson), Zomax's former Chairman of the Board of Directors and Chief Executive Officer, and his wife, Michelle Bedard-Anderson (Bedard-Anderson), Zomax's former Executive Vice-President of Sales and Marketing, engaged in insider trading by liquidating their 821,250 shares of Zomax stock on the basis of material, non-public information that Zomax's third quarter 2000 revenue and earnings would be lower than current consensus estimates. Specifically, the Complaint alleges that in August 2000 Anderson and Bedard-Anderson sold 365,250 shares of Zomax stock in open market transactions. Shortly thereafter, Anderson and Bedard-Anderson used the Jim and Mikki Anderson Charitable Reminder Annuity Trust (Trust) to sell their remaining 465,000 shares of Zomax stock. As a result, Anderson and Bedard-Anderson allegedly avoided losses of approximately $9 million. The Commission's complaint also alleges that Anderson tipped his friend, Neil Dolinsky (Dolinsky), to sell his shares of Zomax stock on the basis of material, nonpublic information. As a result, Dolinsky allegedly avoided losses totaling $139,014.
The Complaint further alleges that Anderson and James E. Flaherty (Flaherty), Zomax's former Chief Financial Officer, misrepresented or omitted to state material facts about Zomax's prospects of meeting projected third quarter revenue and earnings targets. Specifically, Anderson and Flaherty, in a conference call with analysts on July 24, 2000 allegedly represented that Zomax would meet its projected revenue target and analyst expectations. Zomax, Anderson, and Flaherty also allegedly failed to disclose information concerning the decrease in demand for Zomax's products and the material loss of business during this call and in Zomax's Form 10-Q for the second quarter of 2000. The Complaint also alleges that Anthony Angelini (Angelini), Zomax's former President and Chief Operating Officer recklessly failed to act to prevent such disclosures and omissions of material facts from being made. When Zomax announced it would not meet analysts estimates for the third quarter 2000 its stock dropped 61%.
As alleged in the Commission's Complaint, Zomax violated Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 12b-20 and 13a-13 thereunder by filing a materially misstated Form 10-Q for the period ended June 30, 2000. Furthermore, Anderson, Flaherty violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by making material misstatements and omissions regarding the third quarter sales and revenue for Zomax and aided and abetted Zomax in violating Section 13(a) and Rules 12b-20 and 13a-13 thereunder and Angelini aid and abetted Zomax's violations. Anderson, Bedard-Anderson, Dolinsky and the Trust also violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by their trading in Zomax securities and tipping others who traded. Moreover, Anderson violated Section 16(a) of the Exchange Act and Rules 16a-3 and 16a-8(b)(3)(i) thereunder for failing to report the sales of Zomax stock by the Trust.
Zomax, Flaherty and Angelini, without admitting or denying the allegations against them, consented to the entry of orders of permanent injunction against them. In addition, Zomax has agreed to pay $2 million in civil penalty. In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Zomax and cooperation afforded the Commission staff. Flaherty has agreed to disgorge $16,770, plus prejudgment interest, and pay a $75,000 civil penalty. Angelini has agreed to disgorge $43,700, plus prejudgment interest and pay a $50,000 civil penalty. The litigation continues as to all other parties. The Commission also acknowledges the assistance and cooperation of the National Association of Securities Dealers Market Regulation Section of Surveillance and Compliance.