Registered Representative and Account Executive Fraud and Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
Securities and Exchange Commission v. William F. Duncan, United States District Court for the Central District of California, Civil Action No. CV 12-1785 R (AGRx).
Securities and Exchange Commission v. John M. Williams, United States District Court for the Eastern District of Pennsylvania, Civil Action No. 12-1126 PBT.
SEC SUES CALIFORNIA INSURANCE BROKER AND PENNSYLVANIA TAX MANAGER FOR INSIDER TRADING
The Securities and Exchange Commission recently charged a California-based insurance broker and a Pennsylvania-based tax manager with insider trading on confidential information they obtained while providing their respective services to companies involved in an impending acquisition.
The Commission alleges that William F. Duncan (“Duncan”), 60, of Redondo Beach, Calif., and John M. Williams (“Williams”), 38, of Media, Pa., separately traded illegally in the securities of Hi-Shear Technology Corporation (“Hi-Shear”), a Torrance, Calif.-based manufacturer of products for the aerospace and defense industries. After obtaining nonpublic information about Hi-Shear’s proposed acquisition by Chemring Group PLC (“Chemring”), Duncan and Williams each purchased Hi-Shear stock in breach of their duties to these companies before the public announcement of the sale on Sept. 16, 2009.
Duncan and Williams each agreed to settle the Commission’s insider trading charges by paying $175,649 and $14,226.41 respectively.
According to the Commission’s complaint against Duncan filed in federal court in Los Angeles, Hi-Shear sought quotes in late August 2009 for a “tail policy” from its longstanding insurance agent ISU-Olson Duncan Agency. A tail policy provides ongoing insurance coverage for a company’s officers and directors for claims made after a company is sold. Duncan is president of the insurance brokerage. As Hi-Shear’s point of contact, he knew that Hi-Shear expected him to keep sensitive business information confidential and that he had a duty to avoid self-dealing. However, Duncan traded on the basis of the confidential information concerning Hi-Shear’s need for a tail policy. Duncan realized illicit profits of approximately $85,525 on the purchase and sale of 10,000 shares of Hi-Shear stock.
According to the Commission’s separate complaint against Williams filed in federal court in Philadelphia, Williams obtained the confidential information about Chemring’s impending acquisition of Hi-Shear while working as a tax manager at Deloitte Tax LLP (“Deloitte”), which provided services to Chemring and its subsidiaries. Williams assisted in the tax due diligence for the proposed transaction and was told that Hi-Shear was Chemring’s acquisition target. Williams then traded on the basis of the confidential information and concealed his trades from Deloitte, which required its employees to pre-clear and report their trades. Williams realized illicit profits of approximately $6,803.18 on the purchase and sale of 850 shares of Hi-Shear stock.
Duncan and Williams each consented to the entry of final judgments without admitting or denying the allegations against them. They agreed to pay disgorgement of their trading profits, prejudgment interest, and a penalty equal to the amount of their profits pursuant to Section 21A(a) of the Securities Exchange Act of 1934 (“Exchange Act”). They also agreed to be permanently enjoined them from future violations of the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5. Williams, who has passed the CPA examination, also consented to the entry of an administrative order that suspends him for five years from appearing or practicing before the SEC as an accountant pursuant to Rule 102(e)(3) of the Commission’s Rules of Practice.