U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19268 / June 14, 2005
Securities and Exchange Commission v. Barry Hertz, Defendant, CV 05-2848 (JA) (E.D.N.Y.)
Today, the Securities and Exchange Commission filed a complaint against Barry Hertz, Chairman and CEO of Track Data Corporation, a financial services company. Hertz was also President of Track Data Securities, a wholly-owned subsidiary of Track Data Corporation. In its complaint, the Commission charges that Hertz, while in possession of material, nonpublic information concerning the company's revenues during the second and third quarters of 2003, sold Track Data stock out of several accounts before the quarterly financial results became public. Hertz tipped several of his relatives, who also sold their Track Data stock. At the time that he sold the stock and tipped others, Hertz was subject to a company directive that barred trading in its stock prior to the issuance of financial results. In August 2003, Hertz also purchased Track Data stock while in possession of material, nonpublic information that the company would announce that it had authorized payment of a first-time dividend to shareholders.
The Commission's complaint alleges that Hertz 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 .
Specifically, the Commission's complaint alleges as follows:
- By mid-July 2003, Hertz had received and reviewed Track Data's internal revenue reports detailing revenue data for each month of the second quarter that ended June 30, 2003. The most important data that Hertz reviewed was the monthly revenue generated by the high-end MX product, which offers financial data and other market information to the professional market. By comparing each month's revenue to the revenue of the prior month, Hertz was able to determine not only the exact amount of the change from month to month, but could also determine the overall direction of the business. By mid-July, Hertz knew, among other things, the exact amount of the decline in revenue from services to the professional market and knew that the decline was significant.
- On July 11, 2003, Hertz received a company reminder that trading in Track Data securities was prohibited during the period from July 10, 2003, through August 12, 2003, the day after the company expected to announce its financial results for the second quarter.
- On July 15 and 22, 2003, Hertz sold Track Data stock from the accounts of a not-for-profit corporation over which he had trading authority. On July 17, 2003, Hertz sold stock from an account in the name of a corporation owned by his sister ("Roxton account"). In each of the accounts, Hertz sold the entire holding of Track Data stock.
- Hertz also tipped members of his family, who sold stock from their accounts prior to the announcement of the financial results for the second quarter.
- On August 12, 2003, Track Data issued a news release announcing the financial results for its 2003 second quarter. The company noted that it had experienced "a significant decline in revenues from its market data services to the professional market . . . ." Revenues decreased 22% from the same period in 2002. That day the stock lost 21% of its value, closing at $1.26, down from the prior day's close of $1.60. Trading volume surged to over 1.2 million shares from the prior day's volume of 214,000. The following day the stock lost an additional 10%, closing at $1.13.
- Between August 13 and 20, 2003, Hertz purchased Track Data stock for his sister's account with knowledge of the impending issuance of a first-time stock dividend. After the company's public announcement of the dividend on August 25, 2003, the price of the stock, which had previously closed at $1.26, increased by 19% to $1.50.
- On October 15, 2003, Hertz received a company reminder that trading in Track Data securities was prohibited during the period from October 15 through November 12, 2003, the day after the company expected to announce its financial results for the third quarter.
- By the end of October 2003, Hertz had received and reviewed Track Data's internal revenue reports detailing the MX revenue data for each month of the third quarter that ended September 30, 2003. Hertz knew, among other things, the exact amount of the decline in revenue from services to the professional market and knew that the decline for the third quarter was significant.
- On November 5 and 6, 2003, Hertz attempted to sell Track Data stock out of the Roxton account by placing limit orders on those days. The orders, however, expired before they were executed. In addition, on November 6, Hertz ordered the sale of Track Data stock out of the account of another not-for-profit corporation over which he had trading authority.
- On November 11, 2003, Track Data issued a news release announcing the financial results for its 2003 third quarter. The company again noted that it experienced "a significant decline in revenues from its market data services to the professional market. . . ." Revenues decreased 33% from the same period in 2002. That day the stock lost 14.2% of its value.
- By selling Track Data stock prior to the second and third quarter news releases, Hertz and his tippees illegally avoided trading losses of approximately $64,000. By purchasing Track Data stock prior to the dividend announcement, the Roxton account made potential profits of approximately $13,000.
The Commission is seeking against Hertz an injunction, disgorgement and prejudgment interest, a civil penalty, and a bar from acting as an officer or director of a public company.
SEC Complaint in this matter