SEC Files Two Settled Insider Trading Cases
The SEC continued its campaign against insider trading, filing two additional settled insider trading cases on Tuesday. The first named Lou L. Pai, the former Chairman and Chief Executive Officer of Enron Financial Services, as a defendant. According to the Commission’s complaint, after Mr. Pai left the company he learned from insiders that the subsidiary where he had been employed was experiencing certain financial and operational difficulties and contract losses. For the quarter however, the unit reported a profit of about $60 million based on falsified financials rather than the $40 million loss which should have been reported.
In May and June 2001 Mr. Pai sold over 338,000 shares of Enron. In addition, he exercised options he held and sold an additional 572,818 shares. At the time Mr. Pai sold his shares, the average share price was over $53. Subsequently, the share price fell to about $0.40 when the company filed for bankruptcy in December 2001.
To resolve the action, Mr. Pai consented to the entry of a permanent injunction prohibiting future violations of the antifraud provisions. In addition, he agreed to the entry of an order directing that he pay over $30 million in disgorgement, about $11.5 million in prejudgment interest and a $1.5 million penalty. Mr. Pai was given a $6 million credit based on his waiver of certain insurance coverage. SEC v. Pai, Civil Action No. H-08-2338 (S.D. Tex. Filed July 29, 2008).
A second settled insider trading action was filed against George Simchuk, the former General Director of Glamis de Mexico, a subsidiary of Glamis Gold, Inc. In that action, Mr. Simchuk, according to the complaint, traded in advance of the announcement that the company would acquire Western Silver, Inc. Defendant Simchuk led the due diligence team which worked on the acquisition. Nevertheless, prior to the public announcement, Mr. Simchuk purchased 6,000 shares of Western Silver. After the acquisition announcement, the share price of that company increased about 27%.
To resolve the case, Mr. Simchuk consented to the entry of a permanent injunction prohibiting future violations of the antifraud provisions. In addition, he agreed to the entry of an order requiring that he pay disgorgement of over $58,000, prejudgment interest of over $10,000 and a civil penalty equal to the amount of the disgorgement. SEC v. Simchuk, Civil Action No. 08-cv-6728 (S.D.N.Y. July 29, 2008).