U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19587 / March 2, 2006
SEC v. Mitchell Drucker and Ronald Drucker, Defendants, and William Minerva, Relief Defendant, 06 Civ. 1644 (SDNY) (RCC) (DCF)
SEC Charges Attorney and His Father With Insider Trading
The Securities and Exchange Commission today filed charges against Mitchell S. Drucker ("M. Drucker"), an attorney and former associate general counsel at NBTY, Inc. ("NBTY"), a nutritional supplements manufacturer and retailer, and his father, Ronald Drucker ("R. Drucker") (collectively, the "Defendants"), with insider trading in the shares of NBTY stock. The Commission also named William Minerva ("Minerva"), a friend of M. Drucker, as a relief defendant.
The Commission's Complaint, filed in the United States District Court for the Southern District of New York, alleges that on October 18, 2001, M. Drucker directed the sale of his entire holdings of NBTY stock, consisting of 25,700 shares, after learning material, non-public information that NBTY's fourth quarter earnings per share ("EPS") would be about 50 percent lower than analysts' expectations. The day after M. Drucker's sales, NBTY publicly announced, through a press release, that its fourth quarter EPS would be significantly lower than analysts' expectations. On the next trading day following the issuance of the press release, the price of NBTY shares fell by 27%, or $2.69.
The Commission's Complaint also alleges that just after M. Drucker began selling his stock, on October 18, 2001, he engaged in a series of telephone calls with R. Drucker in which M. Drucker conveyed the material non-public information regarding NBTY's fourth quarter EPS results. As a result of this tip, R. Drucker also sold his entire holdings of NBTY stock, consisting of 10,000 shares, on October 18, 2001. Furthermore, while M. Drucker was placing his own trades on October 18, 2001, he also directed the sale of the entire NBTY holdings of his friend Minerva, which consisted of 1,575 shares.
By trading in advance of the public release of NBTY's fourth quarter EPS, M. Drucker, R. Drucker, and Minerva avoided losses of $138,174, $51,116, and $7,953, respectively.
The Commission alleges that, as a result of the foregoing, the Defendants violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In its lawsuit, the Commission seeks an order permanently enjoining the Defendants from violations of the above provisions of the federal securities laws, requiring disgorgement of losses avoided, plus prejudgment interest thereon, and imposing civil penalties pursuant to Section 21A of the Exchange Act. The Commission also seeks an order barring M. Drucker from acting as an officer or director of a public company. In addition, the Commission seeks disgorgement plus prejudgment interest from Minerva, as a relief defendant, for the losses Minerva avoided when M. Drucker sold Minerva's NBTY shares.