On December 7, 2010, the U.S. Securities and Exchange Commission (SEC) charged two individuals with insider trading:
NOTE: THE DEFENDANTS ARE PRESUMED INNOCENT UNLESS AND UNTIL PROVEN GUILTY. ALL CHARGES ARE MERELY ALLEGATIONS AT THIS TIME.
The SEC Complaint, filed in the U.S. District Court for the District of Delaware, alleges that since June 1, 2009, Temple accessed material nonpublic information while employed at the Law Firm, and then used that information to enter trades involving twenty-two prospective mergers and/or acquisitions involving twenty clients of his employer law firm.
Temple used a single brokerage account, opened in June 2009 in his name , and he accessed his account by computer, frequently from an internet address associated with the Law Firm. Electronic login records for Temple's brokerage account show that he often placed trades from work. Frequent telephone calls around the time of the trades indicate that Temple closely coordinated his trading with Pastro, who placed his trades through two online brokerage accounts in his name. Temple is charged with illegally profiting to the extent of at least $88,300.
The Complaint further alleges that in at least twelve instances, Temple tipped his brother-in-law Pastro, who also traded in advance of the public announcement of the prospective mergers and/or acquisitions, realizing profits of more than $94,000.
Together, Temple and Pastro are alleged to have realized illegal profits of over $182,000.
Law Firm Policies
Although the Law Firm is not identified by name in the SEC Complaint, the Complaint does state
According to the Law Firm's website, it has consistently been ranked by national surveys as "the top Delaware-based law firm in dollar volume and number of deals for business combinations, business restructurings, and securities offerings," serving as "Delaware counsel on virtually any type of purchase and sales transactions involving public and privately held clients."
I entered those quotes into a Google search and located the same language as reflected in the cited quotes. According to my findings, the Law Firm is Richards Layton & Finger of Wilmington, DE. http://www.rlf.com/Home Please note that the Law Firm is not charged with any wrongdoing and, to some extent, is a victim of the alleged activity.
The Complaint alleges that upon beginning his employment at the Law Firm, Temple signed an "Acknowledgement of Policy and Compliance," pursuant to which he acknowledged his review of various policies and documents that required all Law Firm employees to keep confidential all information concerning clients of the firm and the services rendered.
An example of Temple and Pastro's insider trading was their alleged use of an impending merger and acquisition involving DynCorp International, Inc. The Law Firm was hired on Oct. 6, 2009 to act as special Delaware outside counsel to Dyncorp's Board of Directors in connection with its possible acquisition by Cerberus Capital Management L.P. Temple and Pastro purchased stock and call options in DynCorp shortly before an Apr. 12, 2010 merger and acquisition announcement. Immediately following the announcement, Temple and Pastro sold their positions and realized more than $34,000 in profits.
Similarly, the SEC alleges that Temple and Pastro also learned about an impending deal between Facet Biotech Corporation and Abbott Laboratories, Inc. The Law Firm was retained as counsel to Facet on or before Aug. 25, 2009, in connection with Abbott Labs's proposed tender offer to Facet. Temple and Pastro bought stock and call options only days before the Mar. 9, 2010 public announcement that Facet agreed to be acquired by Abbott Labs. Immediately after the announcement, Pastro and Temple sold all of their positions for combined trading profits of more than $23,000.
The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.