SEC Separately Charges (and Settles With) Insurance Broker and Tax Manager With Insider Trading of the Shares of the Same Company
On Monday, March 5, 2012, the SEC announced that it had filed two separate cases, charging William Duncan, a California-based insurance broker, and John Williams, a Pennsylvania-based tax manager, with insider trading in the shares of Hi-Shear Technology Corporation ("Hi-Shear"). Both men obtained material confidential information regarding Hi-Shear’s proposed acquisition by Chemring Group PLC ("Chemring") and purchased Hi-Shear shares before the September 16, 2009 announcement of the transaction. Both men agreed to settle with the Commission.
The SEC filed its action against Mr. Duncan in federal court in Los Angeles, alleging that Hi-Shear approached him and his company (insurance agent ISU-Olson Duncan Agency) in August 2009, seeking quotes for a "tail policy" (coverage for the company’s officers and directors for claims made after the company is sold). Mr. Duncan purchased 10,000 shares of Hi-Shear, which he sold after the announcement (earning a profit of $85,525). He agreed to pay disgorgement, prejudgment interest, and a penalty (a total of $175,649) to settle the matter with the Commission.
The SEC sued Mr. Williams in federal court in Philadelphia, alleging that he obtained information from the other side of the Hi-Shear / Chemring transaction. Mr. Williams was a tax manager at Deloitte Tax LLP ("Deloitte"), and assisted in the tax due diligence for the proposed transaction while providing services to Chemring and its subsidiaries. When he learned that Chemring was seeking to acquire Hi-Shear, he purchased 850 shares of Hi-Shear, concealed those trades from Deloitte (who required its employees to pre-clear and report their trades). After the acquisition announcement, Williams sold the shares for a profit of $6,803.18. He agreed to settle with the SEC and pay disgorgement, prejudgment interest, and a penalty (a total of $14,226.41). Mr. Williams will also be suspended for five years from appearing or practicing before the SEC as an accountant
While the profits involved seemed miniscule when compared to cases like the ones against Raj Rajaratnam or Matthew Kluger, it does reflect that the Commission is committed to pursue insider trading cases, large or small. Mr. Rajaratnam was ordered to pay $92 million in the SEC's case against him (as discussed here). Mr. Kluger, an attorney who allegedly used inside information he obtained regarding his employer law firm's clients, made over $100 million with his co-conspirators (as discussed here) (the SEC advised the Court last week that the parties have reached an agreement to settle, which must be approved by the Commissioners).