SEC Obtains Emergency Asset Freeze of More Than $2.1 Million and Charges Italian Resident With Insider Trading
The Commission yesterday filed an emergency civil action in the United States District Court for the Southern District of New York against Cristian De Colli, a machinery engineer residing in Rome, Italy, alleging that he engaged in insider trading from which he reaped more than $2.1 million in illicit profits from highly suspicious trading in his U.S. brokerage account in the securities of DRS Technologies, Inc., prior to the public disclosure of advanced merger negotiations.
The Commission also filed an application for a temporary restraining order in order to freeze De Colli's assets in the United States. The Honorable Paul A. Crotty, United States District Judge in the Southern District of New York, issued a temporary restraining order freezing De Colli's assets in the U.S., including his brokerage account, containing more than $2.1 million in ill-gotten gain from his insider trading. The order also grants expedited discovery, an order permitting alternative means of service, and an order preventing the alteration or destruction of documents.
The Commission's complaint alleges that while in possession of material, nonpublic information regarding merger talks between DRS and Finmeccanica S.p.A, Cristian De Colli purchased shares and call options of DRS common stock. The Complaint further alleges that after public disclosure of the merger talks, De Colli liquidated all of his call options for an illicit profit of five times the amount of his original investment.
According to the Complaint, De Colli purchased 5,700 shares of DRS common stock from April 10 to April 29, 2008, and 3,116 call options for the common stock of DRS between April 15 and May 7, 2008. De Colli purchased more than 2,400 of the call options on May 6 and May 7, including certain options that were out-of-the-money by over $6 and which expired ten days after purchase. On April 28, 2008, De Colli liquidated securities that he had purchased in two other companies a week earlier in order to purchase additional DRS options. At that point, 100 percent of the holdings in De Colli's U.S.-based brokerage account consisted of DRS call options and DRS stock.
The SEC's complaint further alleges that immediately following a May 8th Wall Street Journal article reporting the advanced merger negotiations and after confirmation by DRS that it was engaged in talks regarding a potential strategic transaction, De Colli liquidated all of his call options and made his ill-gotten profit of more than $2.1 million on his initial investment of approximately $422,000. Finmeccanica later announced on May 12, 2008 that it would acquire DRS for $5.2 billion, or $81 a share.
The Commission's complaint further alleges that, in an interview with SEC staff, De Colli stated that no family members, friends, or anyone else he knew had ever worked for Finmeccanica. According to the Complaint, contrary to his statement, however, De Colli's older brother worked for Finmeccanica between 2004 and 2005.
By virtue of the conduct described above, the Commission alleges in its complaint that De Colli violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks a permanent injunction, disgorgement of ill-gotten gains with prejudgment interest, and civil money penalties.
The Commission's investigation is continuing. [SEC v. Cristian De Colli, United States District Court for the Southern District of New York, Civil Action No. 08-CIV-4520 (S.D.N.Y.)] (LR-20581)
Preliminary Injunction Entered in $25 Million Dollar Fraud Action in Orange County
On May 12, 2008, the Honorable James V. Selna, United States District Court Judge for the Central District of California, entered an order preliminary enjoining Laguna Hills, California based Safevest, LLC and its principals, Jon G. Ervin, Sr., age 61 and a resident of Mission Viejo, California, and John V. Slye, age 68 and a resident of Arlington, Virginia, from future violations of the antifraud provisions of the federal securities laws. In addition to the preliminary injunction, the order continues the previously imposed asset freeze and appoints Thomas A. Seaman as permanent receiver over defendant Safevest, LLC.
The Commission's complaint, filed in federal court in Santa Ana, California on May 1, 2008, alleges that since at least May 2007, the defendants have raised more than $25 million from more than 500 investors, including many from the Christian community, misrepresenting that investor funds would be pooled and invested in commodity futures trading, that the investment would generate daily profits ranging from 1.5% to 1.9%, and that investors could receive their money back within 72 hours of requesting it. In reality, according to the complaint, no investor money was invested in futures trading, and requests by investors for withdrawal of their funds have either not been honored or have only been partially honored. The complaint further alleges that, undisclosed to investors, the defendants paid more than $18 million to investors in Ponzi-like fashion. The defendants also allegedly misappropriated investor funds for the personal use of Ervin, Slye, and their family members.
Pursuant to the order entered May 12, 2008, defendants Safevest, Ervin, and Slye are preliminarily enjoined from future violations of the antifraud provisions of 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. The Commission seeks permanent injunctions, disgorgement, and civil penalties against all defendants.
Investors may direct their inquiries to the permanent receiver, Thomas A. Seaman, at (949) 222-0305 or at email@example.com. For further information, see Litigation Release No. 20552 (May 2, 2008). [SEC v. Safevest, LLC, et al., Civil Action No. SACV08-00473 JVS (MLGx) (C.D. Cal.)] (LR-20582)
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