The War On Insider Trading Continues — Two More SEC Cases

On Wednesday, the campaign on insider trading continued with two more insider trading cases being filed. One case is a settled action brought against an attorney. A second named the Chief Executive Officer of a medical instrumentation company, who did not settle, and his alleged tippee, the father of a co-worker, who did settle.

In SEC v. Myers, Civil Action No. 08-CV-5109 (S.D.N.Y June 4, 2008), the Commission filed a settled insider trading case against attorney Jeffrey Myers of Cranberry Township, Pennsylvania. According to the complaint, Mr. Myers knew a member of the board of directors of NSD, a takeover target. NSD’s board had received four takeover bids. One offer was from FNB Corp. for $40 per share. Mr. Myers and the NSD board member (who later passed away) were business associates. Following a meeting between the two, Mr. Myers purchased 1,000 shares of NSD stock. Approximately one month later, a merger between FNB and NSD was announced.

To settle the action, Mr. Myers consented to the entry of a final judgment permanently enjoining him from future violations of Section 10(b) and Rule 10b-5. He also consented to the entry of an order requiring him to pay disgorgement and prejudgment interest totaling $13,705 and a one-time civil penalty of $10,939.

In SEC v. Fontanetta, Civil Action No. 08-CV-5110 (S.D.N.Y. June 4, 2008), the Commission brought an insider trading action against Joseph Fonanetta, the Chief Executive Officer and a board member of a privately held Diopsys, Inc., and Burr McKeehan, a retired podiatrist and an original investor in Animas when it was formed in 1996.

According to the complaint, Animas Corporation was being acquired by Johnson & Johnson. Prior to the announcement, Mr. Fontanetta was told about the merger from another member of his board of directors, who had learned about the transaction from his wife, an Animas executive. Subsequently, Mr. Fonanetta tipped Burr McKeehan after first discussing the matter with Mr. McKeehan’s daughter, a Diopsys executive with whom he had been working. Mr. McKeehan purchased 30,000 shares of Animas stock prior to the merger and after his conversation with Mr. Fonanetta.

Mr. McKeehan resolved the action by consenting to the entry of a permanent injunction as well as an order requiring him to disgorge his trading profits and prejudgment interest and pay a civil fine in an equal amount. The action is still pending as to Mr. Fontanetta.