|
 
| |
 |
 |
SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16469 / March 14, 2000
Securities and Exchange Commission v. John Freeman, James Cooper,
Benton Erskine, Anthony Seminara, Norman Lehrman, Linda Karlsen, Timothy
Siemers, Norman Grossman, Lawrence Schwartz, Michael Akva, Robert Fricker,
Richard Zelman, Bradley Burke, Benjamin Cooper, Chad L. Conner, Deon
Benson, Gordon K. Allen, Jr., Jon Geibel, and William H. Borders II, 00
Civ. 1963 (VM) (Southern District of New York)
The Securities and Exchange Commission announced that it filed insider
trading charges today against 19 defendants who, from 1997 through January
2000, engaged in a widespread insider trading scheme that produced over $8
million in illegal profits from trading in the securities of 23 public
companies. The source of the inside information was a part-time word
processor who was assigned by the temporary agency where he worked to two
Wall Street investment banking firms, Goldman Sachs & Co. Inc., and
Credit Suisse First Boston Corporation. Also among the defendants are four
principals or employees of broker dealers who traded on the inside
information for their own accounts and/or the accounts of their clients.
The case was filed in the United States District Court for the Southern
District of New York.
The Complaint charges that the source of the information was defendant
John Freeman, 34, of Brooklyn, New York. From approximately October 1996
to January 2000, Freeman was employed as a graphic artist at Philip Morris
Companies, Inc. At the same time, Freeman also worked evenings at an
agency that provides temporary word processing services. From May 1997 to
June 1998, Freeman was assigned by the agency to work at Goldman Sachs.
From October 1998 to January 2000, Freeman was assigned to work at CS
First Boston. As a temporary employee at the two firms, Freeman was able
to gain access to material nonpublic information regarding numerous merger
and acquisition transactions. Freeman is charged with misappropriating
confidential information concerning at least 23 different transactions,
and tipping directly at least ten others about the transactions. Some of
those tipped by Freeman then tipped others about the transactions.
The Commission alleges that, based on information provided by Freeman,
each of the defendants purchased the common stock and/or options of some
or all of the following public companies: Oregon Metallurgical Corp.,
Lukens, Inc., Sano Corp., USF&G Corp., Regal Cinemas, Inc., Illinois
Central Railroad Co., Coherent Communications Systems Corp., Baker Hughes,
Inc., CIENA Corp., DSC Communications Corp., Camco International, Inc.,
Getchell Gold Corp., United States Satellite Broadcasting Co., SmarTalk
Teleservices, Inc., Fingerhut Co., Mercantile Bancorporation, Inc., Wang
Laboratories, Cogeneration Corp. of America, RailTex Inc., Medco Research,
Inc., Splitrock Services, Inc., Cameron Ashley Building Products, Inc.,
and Jason, Inc. At the time that Freeman tipped the other defendants about
these companies, each of the companies was involved in a significant
transaction that involved the merger or sale of the company.
The Complaint alleges that Freeman was compensated by those that he
tipped in a variety of ways. In return for the information, many of the
defendants agreed to pay Freeman for his tips. Their payments took many
forms. In some instances, cash was enclosed in unsigned birthday cards
sent to Freeman in envelopes bearing no return addresses. In other
instances, checks were sent to third parties who cashed them and funneled
the money to Freeman. One defendant disguised his payment as a "loan" to a
friend of Freeman, who then repaid the loan to Freeman. Another defendant
paid Freeman in cases of wine.
The Complaint includes the following allegations about Freeman and the
other defendants:
Internet Tippees
 | The scheme began in mid-1997, when Freeman met defendants James
Cooper and Benton Erskine in an internet chat room devoted to the
performance of a stock in which all three had invested and lost money.
James Cooper, age 41, is an insurance agent who resides in Bowling
Green, Kentucky. Erskine, age 39, resides in Charleston, West Virginia.
Erskine is the Vice President of a printing company in Charleston.
| Freeman had never met either James Cooper or Erskine before he began
communicating with them via the internet in mid-1997. In the course of
their on-line communications, Freeman informed James Cooper and Erskine
that he was assigned to the word processing department of Goldman Sachs.
The three then agreed upon a plan to profit from any inside information
Freeman could garner about merger and acquisition transactions being
planned by Goldman Sachs' clients.
| On numerous occasions, Freeman passed material nonpublic information
to James Cooper and to Erskine regarding merger and acquisition
transactions on which either Goldman Sachs or CS First Boston was
working. Freeman often passed such information to James Cooper and
Erskine by using private chat rooms and instant messaging capabilities
of America On-Line. In return, James Cooper and Erskine agreed to pay
Freeman a portion of their trading profits.
| James Cooper purchased securities in at least 16 companies that were
the subject of merger and acquisition transactions Freeman learned about
while working at Goldman Sachs and CS First Boston, and realized trading
profits of over $227,000. For his part, Erskine traded in the stock of
companies involved in at least 16 of the deals, and reaped profits of
more than $273,000. | | | |
Bowling Green Tippees
| In addition to trading for his own account, James Cooper tipped at
least three individuals who live in Bowling Green: his brother,
defendant Benjamin Cooper; a friend, defendant Deon Benson, a local
dentist; and his stockbroker, defendant Chad L. Conner. James Cooper
also caused another friend, formerly a resident of Bowling Green, to
trade on eight occasions, earning over $60,000.
| Benjamin Cooper, 35, works with his brother James, also as an
insurance agent. Benjamin Cooper was tipped by his brother about
fourteen announcements, and made at least $149,000 from trading on that
information.
| Following tips from James Cooper, Benson, 41, purchased the
securities of 10 companies, and realized trading profits of $838,000.
| Conner, 35, is a stockbroker in the Bowling Green office of Morgan
Keegan & Co., Inc., a regional broker dealer headquartered in
Memphis, Tennessee. After Conner was tipped by James Cooper, he caused
five of his clients, all Bowling Green residents, to trade before 3 to
16 deal announcements. Collectively, those clients had profits of over
$2.6 million. On one occasion, Conner traded in his own account after
being tipped by James Cooper, earning at least $2700. Conner also tipped
at least two other residents of Bowling Green: his supervisor, defendant
William H. Borders, II, and a friend, defendant Gordon K. Allen, Jr.
| Borders, 37, is the branch manager of the Morgan Keegan office where
Conner was employed. He was tipped both by Conner and by Benson (who was
Borders' client). With inside information he received from Conner and
from Benson, Borders traded for his own account, and reaped profits of
$84,150.
| Allen, 35, is a principal of G2 Investments, Inc., a broker-dealer
located in Nashville, Tennessee. Allen generated profits of over
$415,000 by trading on tips on at least 13 deals. Allen, in turn, tipped
a colleague at G2 Investments, defendant Jon Geibel of Nashville.
Geibel, 29, made over $94,000 in profits by trading on inside
information in at least seven deals. Allen and Geibel together made an
additional $377,000 in insider trading profits from two other accounts
that they controlled jointly. The two also caused another colleague at
G2 Investments to purchase securities on two deals, realizing profits of
at least $47,000. | | | | | |
Phillip Morris Tippees
Freeman also tipped material nonpublic information he obtained from
Goldman Sachs and/or CS First Boston to three of his co-workers at Philip
Morris, defendants Anthony Seminara, Norman Lehrman and Linda Karlsen.
Seminara, age 47, resides in Long Beach, New York. He is a full time
employee in the Composition Department of Philip Morris. Seminara traded
in the securities of eight companies after being tipped by Freeman, and
had profits of over $42,000
Lehrman, age 42, resides in Tallman, New York. Lehrman was formerly
employed as a manager of the company that provides the dining services for
Philip Morris. Lehrman traded in the securities of four companies after
being tipped by Freeman, and had profits of over $110,000.
Karlsen, age 46, resides in Brooklyn, New York. She is a full time
employee of Philip Morris. Karlsen purchased the securities of eleven
companies after being tipped by Freeman, and had profits of over $192,000.
Les Halles Tippees
| Freeman also tipped two individuals he had met when he had worked as
a waiter at the Les Halles restaurant in New York City: defendants
Timothy Siemers and Norman Grossman. Siemers, age 33, resides in New
York City, New York. He is a waiter at Les Halles. Siemers purchased in
his accounts the securities of 18 companies and realized profits of at
least $285,000. This figure includes a $28,000 profit in an account in
Siemers' name that he shared with Freeman. In addition, Siemers'
brothers purchased securities before at least eight transactions;
together they made over $36,000.
| Grossman, age 54, resides in Long Island City, New York. He is a
retired New York City school teacher and a frequent patron of Les
Halles. Following tips from Freeman, Grossman purchased the securities
of nine companies, and realized trading profits of over $445,000.
| |
Friends and Neighbors
| Freeman tipped three of his friends and/or neighbors: defendants
Lawrence Schwartz, Michael Akva, and Richard Zelman. Schwartz, age 59,
resides in New York City. He is the owner of L&M Larjo Construction
Company. Schwartz purchased the securities of 22 companies after being
tipped by Freeman and realized profits of at least $822,000.
| Akva, resides in Flushing, New York. He is a car salesman. Akva
purchased the securities of at least seven companies after being tipped
by Freeman, and realized profits of at least $100,000. Akva and Freeman
also tipped a friend of Akva, defendant Robert Fricker. Fricker, 46,
lives in Kew Gardens Hills, New York, and he owns a construction
company. He purchased the securities of four companies and realized
trading profits of over $946,000.
| Zelman, age 32, resides in Nyack, New York, and is a former neighbor
of Freeman. He is self-employed. With Freeman's agreement, Zelman caused
a friend to purchase the securities of four companies, realizing profits
of over $200,000.
| Freeman also told defendant Bradley Burke, who, like Freeman, was a
temporary agency employee assigned to CS First Boston, about the scheme.
Burke, age 38, resides in New York City. Burke was assigned to CS First
Boston approximately one week after Freeman. In the spring of 1999,
Burke approached Freeman about participating in the insider trading
scheme. Freeman agreed that if Burke would provide information about
impending deals, Freeman would disclose the information to his tippees,
and Burke would receive a share of the trading profits. Burke told
Freeman about several possible deals, but only one of those transactions
occurred. Burke also tipped directly defendant Siemers, a mutual friend.
Freeman gave Burke cash from certain of the tippees, as payment for the
information Burke provided. | | | |
Each of the defendants is charged with violations of Section 10(b) of
the Securities Exchange Act of 1934 and Rule 10b-5. In addition, the
following defendants are charged with violations of Section 14(e) of the
Exchange Act and Rule 14e-3 by trading on inside information relating to
securities for which tender offers were made: Freeman, Allen, Benson,
Conner, Benjamin Cooper, James Cooper, Erskine, Geibel, Grossman, Karlsen,
Lehrman, Schwartz, Seminara, Siemers and Zelman. The SEC seeks injunctive
relief, disgorgement, civil penalties and other appropriate relief with
respect to each of the defendants.
The Commission coordinated its investigation with that of the
Securities and Commodities Fraud Task Force in the Office of the United
States Attorney for the Southern District of New York, which filed related
charges today. The Commission also acknowledges the assistance provided by
the American Stock Exchange, the New York Stock Exchange, the Chicago
Board Options Exchange, NASD Regulation Inc., and the Philadelphia Stock
Exchange.
The Commission's investigation into these matters is continuing.
Additional Materials Available on This Topic
Complaint ,
SEC v. John Freeman, et al.
http://www.sec.gov/litigation/litreleases/lr16469.htm
| |
