Long Time Employee Insider Trades in Company Shares
Insider trading has long been a staple of the Commission’s enforcement program. Over the years the agency has filed numerous insider trading cases. While at times the cases may have appeared different or had elements that may have been labeled differently, at the core of each case is the same basic principles – trading built on a breach of duty and trust. And, it is just that principle which is at the core one of the Commission’s most recent cases in the area, In the Matter of Robert J. Schettino, Adm. Proc. File No. 3-21977 (June 25, 2024).
This action centers on trading in the securities of NAPCO Security Technologies, Inc. by Robert Schettino. The company is a Delaware corporation based in Amityville, New York. It designs and manufactures electronic security devices, and cellar communications services for intrusion and fire alarm systems and school security systems.
Respondent Schettino has been employed at NAPCO since 1991. Initially, he was the controller. He has also served vice president of finance. Throughout his time at the firm, Respondent has been responsible for overseeing the process of finalizing the accounting records for each quarter and the preparation of the financial reports for the company.
Prior to the second fiscal quarter of 2020 NAPCO had not reported a quarter-over-quarter decline in equipment revenue in recent years. Yet in the second fiscal quarter of 2020 Respondent and other company officers received data showing that NAPCO revenue on a quarter-over-quarter basis for equipment revenues declined. The numbers also showed that consolidated revenues for the quarter would be below analyst consensus figures.
On January 17, 2020, while he was overseeing the finalization of the accounting records for the period, Respondent sold all of the 20,975 shares of NAPCO stock in his brokerage account. He had not purchased or sold a share of company stock for five years. The sale constituted a breach of fiduciary duty.
When the company results were issued on February 3, 2020, the share price for NAPCO declined about 22%. As a result of his trades, Respondent avoid losses of about $198,566. The Order alleges violations of Exchange Act Section 10(b) and Rule 10b-5.
To resolve the proceedings, Mr. Schettino consented to the entry of a cease-and-desist order based on the Section and Rule cited in the Order. He is also prohibited from acting as an officer or director of any issuer registered under Exchange Act Section 12 or required to report under Exchange Act Section 15(d). He is, in addition, denied the privilege of appearing or practicing before the Commission as an accountant. Finally, Respondent is ordered to pay disgorgement of $198,566, prejudgment interest of $38,815 and a penalty equal to the amount of the loss avoided.